Property prospects look bleak

Property prospects look bleak

The residential property market faces bleak prospects this year as distressed sales and sales in execution encounter reduced demand and the fall in house prices is likely to continue.

But the construction industry is defying economic difficulties, with some firms reporting order books at record levels.

Jacques du Toit, a senior property analyst at Absa, says the market will hit bottom only around the middle of this year and gradually recover in the second half, on the back of lower inflation and interest rates, before showing a noticeable improvement next year.

Du Toit has forecast that house prices, after adjustment for inflation, will drop by 4.5 percent this year, after a fall of about seven percent in real terms last year

John Loos, a First National Bank Home Loans property strategist, forecasts house price deflation of between three percent and five percent this year.

Loos says the national price deflation figure recorded was not a surprise given the range that have been steadily mounting against the residential market.

Debt levels

One of the biggest obstacles to a recovery in residential property is the high debt levels of households, which, with the cumulative increase of 500 basis points in interest rates since June 2006, had reduced housing affordability.

The ratio of household debt to disposable income fell to 75.3 percent in the third quarter, from 76.3 percent in the second quarter and 78.5 percent in the first.

Distressed sales of houses increased dramatically during the year, and the financial plight of homeowners was exacerbated by banks tightening up on access homeowners had to the equity in their homes.

The slowdown in sales of residential property resulted in thousands of estate agents quitting the business. The mortgage sector origination industry started retrenching staff after a year-on-year slump in volumes of more than 50 percent because of the housing market slowdown.

Loos describes the performance of the residential property market last year as dismal.

He attributes it to the effects of a commodity price spike and global food prices going into orbit, leading to a major inflation surge and a further resumption of interest rate hikes in the second quarter.

Loos says the overall index moved into deflation late last year and forecasts that it will return to positive territory only in 2010.

  • This article was originally published on page 10 of Daily News on January 07, 2009

Article by: Roy Cockayne - from: www.iol.co.za