Property buyers face a bleak 2011

As the global economic outlook remains uncertain, property investors should brace themselves for a slowdown in the capital appreciation of their existing assets.

Not even a rate cut on Thursday is expected to make much difference to the rather sad picture.

At least the slower growth in house price inflation provides other opportunities for first time investors to enter the market, or existing investors who are keen to grow their portfolios.

While house price deflation is not foreseen by analysts in the foreseeable future, the weak economic recovery concerns involving big players like the US, Europe don't augur well for the consumer confidence and the property market.

Absa senior analyst Jacques du Toit feels the 2011 growth rate in the property market could be lower than 2010 if these market uncertainties do not subside.

As the market awaits the South African Reserve Bank's decision on interest rates on Thursday, Du Toit feels that while the expected 50 basis point cut in lending rates will boost the property market in the short term, it will not stimulate much activity in the market.

There are a lot of uncertainties about the global market conditions at this stage. The integrated nature of our own economy to the rest of the world had resulted in a recession last year here in South Africa.

Its attendant consequences eroded consumer confidence as people lost their jobs. That hit the property market,? he says.

The latest Absa house price index, released on Wednesday, shows that residential property market growth eased further in August.

The average nominal value of small, medium and large houses increased by a weighted 7.1% year-on-year (y/y) in August, down from a revised growth rate of 9.4% y/y in July.

The average nominal price of a house in the middle segment of the market was around R1.036 million in August 2010.

In real terms, the middle-segment home values were up by 5.5% y/y in July after they were up by a real 7% y/y in June, based on consumer price inflation slowing down to 3.7% y/y in July from 4.2% y/y in June.

The value of small houses increased by a nominal 28.3% y/y in August, slightly down from a revised 28.7% y/y in July. The average nominal value of a home in this segment was about R837,100 in August.

In real terms, the value of a small house was up by 24.1% y/y in July, after rising by 23% y/y in June.

The house price growth rates that we saw in the second half of 2009 are tapering off, with smaller house category also coming off after registering a strong growth relative to other segments,? Du Toit said, adding that these base effects were driven by largely by the improving global market conditions.

According to a survey of 14 leading economists by I-Net Bridge, a 50 basis point cut is expected for South Africa's repo rate at the MPC meeting.

Looking ahead, the y/y house price growth is expected to slow down further towards the end of 2010, with prices forecast to grow at an average of about 10%.

Source: I-Net Bridge

Article by: Andries Mahlangu - www.eprop.co.za