Property outlook “bleak” but not all bad news

JOHANNESBURG (January 14) – FNB expects year-on-year price deflation to dog the residential property market for most, if not all, of this year.

However, while conditions for the market look bleak, John Loos, FNB Home Loans Property Strategist says in its recently released overview of the December market, that it’s not all bad news.

“Following on the global commodity price slump in the second half of 2008, CPIX inflation numbers have begun to improve in recent months, and as a result, the SARB began interest rate cutting in December with a 50 basis point reduction in its repo rate. It is expected to continue with steady rate reductions throughout 2009.”

Loos notes that with the market being very interest rate-sensitive, he expects demand to respond positively to the expected further interest rate cutting, and a stabilisation in demand followed by gradual recovery through the year is anticipated.

However, the emphasis remains on “gradual” because against the positive news of lower interest rates looming, the market will unfortunately probably have to deal with the negative news of low economic growth and possible further job shedding this year, also an important influence on residential demand.

“While lower interest rates do help to stimulate economic growth and job creation, their influence is expected to be partly negated by a very weak global economy, still reeling from the lagged negative impact of the commodity price spike (most notably oil) which peaked around mid-2008, along with the financial sector crisis sweeping some major parts of the developed world, most notably the US.”

Loos says the global economic crisis has already taken its toll on SA’s export-driven manufacturing and mining sectors, but it would be unrealistic to believe that the effects are over yet.

“So, although some improvement in residential demand is expected, 2009 is still expected to be a tough year for the market. There will probably still be some oversupplies around for much of the year, with selling due to financial strain and “sales in execution” not expected to decline sharply over-night. Hence, the forecast of year-on-year price deflation remaining for the entire 2009, and the FNB House Price Index average for 2009 to decline by -4.2% before showing some recovery in 2010.

Article from: www.rodneyhayter.com