Standard Bank downplays house slump
Johannesburg - The residential property market is expected to suffer a relatively mild cyclical downturn rather than a full-blown recession, according to Standard Bank.
The bank made this prediction this week despite its own property gauge disclosing that the median house price fell to R530 000 last month from R550 000 in March. At this pace, prices would fall nearly 44 percent in 12 months.
The decline since April last year translated into a negative annual growth rate of 8.6 percent, Standard Bank said. The five-month moving average growth rate worsened to minus 2.8 percent year on year.
However, the bank said its figures should not be taken at face value and should be interpreted with caution before any assumptions were made.
Sizwe Nxedlana, Standard Bank's property economist, said: "Given the dismal house price growth currently being experienced in South Africa, the question of whether or not the South African housing market will experience a deep recession similar to that being experienced in the US housing market is being asked with increasing frequency.
"However, our analysis of the sources of recession in the US housing market and its subsequent transmission mechanism to the rest of the US economy suggest that South African residential property will experience a relatively mild cyclical downturn rather than a full-blown recession."
Leon Barnard, the director of Standard Bank's personal and business banking products, said property remained one of the best investments and over time had shown good returns.
However, he added: "There is no denying that South African consumers are starting to feel the pinch of increasing inflation and the higher interest rate environment. Property prices have cooled off dramatically in the past few months as a consequence of these environmental pressures."
While acknowledging that the numbers "might raise some concern", Barnard said a closer look at the data revealed a more nuanced picture.
"Firstly, it is the uppermost sector of the property market that has cooled off the most. We are starting to see increased levels of activity in the lower property segments. It's not all doom and gloom.
"Standard Bank is actually pleased with the performance and resilience being seen in the lower spectrums of the property market," Barnard said.
Also this week, Absa announced that house price inflation slowed to an annual 6.8 percent last month, the lowest rate in eight and a half years, from a revised 7.8 percent in March as rising interest rates curbed demand.
Nationally the average price of a house on Absa's index was about R974 000 last month.
Adjusted for inflation, house prices in the middle segment of the market fell by 2.5 percent on an annual basis to R631 800 in March, the worst performance since May 1997. This followed a 0.9 percent decline in real terms in February, Absa said.
It added that house prices for the year as a whole would probably fall in real terms for the first time since 1999.
Standard Bank said the base value from which its latest and pending year-on-year growth rates were calculated had been set at a relatively high level last year. This was primarily due to the temporary upward adjustment in the distribution of mortgages entering the home loans book in the months leading up to the introduction of the National Credit Act.
The residential property gauge found that the risk of national house price deflation had increased further and there were areas that were possibly already experiencing price deflation, albeit from a high base.
Houses were increasingly being sold at below the initial asking price and were staying on the market for longer. There was increasing anecdotal evidence of a rise in housing stock for sale and more distress selling.
"This suggests that sellers have to revise their price expectations downwards, placing downside risk to house prices," Standard Bank said
Article by: By Wiseman Khuzwayo