Minimal house price growth predicted for 2012

With predictions on how the residential property market will perform in 2012 coming off South Africa's press almost daily, it was interesting hear from Dianne Brock, General Manager of the Western Cape branch of the Institute of Estate Agents of South Africa, that, despite a marked upturn of sales in November, early December and early January, she predicts "absolutely no fireworks for the foreseeable future".

As Brock sees it, throughout 2012 prices will stay close to their current levels ("a drop in real house values along with a nominal increase is to be expected") and sales of residential units per month in the Western Cape will continue to hover around approximately 20,000 per month.

This view of prospects in 2012, said Brock, ties in with that of the FNB economist, John Loos, one of whose reports stated that "the mild price deflation witnessed in the house price index cannot be said to reflect the full extent of market weakness". This, he believes, still points slightly downwards.

Brock said that although estate agents have reported a gradual easing in bank lending criteria, she herself believes that the increase in the number of bonds being awarded is due mainly to potential homebuyers now understanding the National Credit Act and the banks' lending parameters. As a result, she said, South African households are handling their finances more carefully, putting their affairs in order before applying for a bond. What is more, there is now a greater willingness to buy at lower prices - 73% of today's Western Cape sales are now are under R2 million.

There also, says Brock, seems to be a move, after three lean years, by the major banks to fight for a bigger share of the bond market. This is good news for agents and potential home owners alike.

"It is at last widely recognised that high levels of short term debt with one or two major unpaid debts will completely nullify any chance of getting a bond. As a result, the 'immediate gratification buying' era is rapidly coming to a close. Consumers are learning to budget for items and are recognising the need to save for big ticket items like cars and homes. Our agents report a far more sober and realistic attitude to finances among their clients these days."

Like certain other residential property sector spokesmen, Brock said that she has noticed a shift in buy-to-rent property investment towards the residential sector and a concomitant reluctance to buy commercial property unless it is available at bargain prices. This, she said, makes sense because although commercial rental returns tend to be 3% to 5% higher than those of residential properties, the number of vacancies in that sector is now over 10% and defaulting commercial tenants are far harder to replace than those in residential property.

Referring again to the FNB review, Brock said that there is now stronger demand for three bedroom homes. This, FNB believe, is driven by the cyclical demand from the more established families who today are forced to wait and build up bigger deposits.

Repeated warnings from Western Cape agency principals, said Brock, regarding the dangers of overpricing are also at last beginning to be heeded - not only by clients but also by the agents themselves.

"With Western Cape houses now taking an average of 119 days to sell," she said, "agents will be more reluctant to accept any home which is likely to stick on the market due to overpricing. Agents these days are increasingly aware of limited advertising budgets and the need to keep their marketing streamlined, holding the prime spots for houses which have a better chance of being sold due to correct pricing worked out in partnership with the owner.

One good sign, said Brock, is that car sales have recently risen: this, she said, is an indicator that house sales will pick up - but, as mentioned, she does not see significant price hike this year, although she does continue to advocate buying now while prices and interest rates are at their low levels.

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