Slowly, but surely
Intellectual Property Magazine - Tue, 16 May 2006
A common failing these days is to think that house prices are falling. They are not. What is happening is that the rate of price growth is declining. And, clearly, this is to be expected after the recent residential property lift-off the so-called property boom.
To put it into perspective, house prices have risen a phenomenal 120 percent over the past five years, peaking at an average annual rate of 36 percent in 2004. Price growth slipped marginally to an average of 32 percent last year, and latest stats indicate a growth rate of 21 percent in February, falling to 18 percent in March.
Growth is expected to slow further, although our prediction for the year is not less than 12 percent. Obviously some areas will show higher growth, like Gauteng and the coastal areas. Others will be quieter.
Why the market is slowing
The anticipated slowdown is supported by a number of factors. Property industry researchers, for example, have recorded an increase in the average time that a house is on the market 53 days during the period November 2005 to January 2006 in comparison with 48 days in the preceding three months.
Coastal properties sell more quickly than inland homes. Further, on average, properties sold for four percent below the asking price between November 2005 and January 2006. However, in the lower-priced bracket, 75 percent of sellers are achieving their asking price.
According to the Standard Banks latest Property Gauge, the deceleration in house price growth is the result of the high base created by the boom, the reduction in pent-up demand after several years of brisk buying, and the fading impact of interest rate cuts.
In other words, the rate of price increases was unsustainable.
Mid-range properties growing fastest
Although growth is slowing across the board, there are noticeable differences in the various price segments. Prior to the sharp acceleration in house prices since 2003, luxury house prices generally outpaced those of less expensive houses, while the least expensive house prices generally grew the slowest. More recently, however, faster growth has been recorded in the middle price ranges than among the most expensive houses.
Says Standard Bank: "This is attributable to two factors. Firstly, the growing middle class supports the middle price segment. Secondly, increasing prices in the premium segment have been stimulating the demand for more affordable property, with townhouses and flats gaining popularity relative to houses.
"This trend is supported by lifestyle changes and security concerns, which favour smaller 'lower maintenance' properties in secure complexes.
Demand exceeding supply
According to Stats SA the number of houses completed in September last year (the most up-to-date figure) was three percent lower than in the corresponding period the previous year. But the number of townhouses and flats built grew by 170 percent over the same period.
The continuous price growth in this segment implies that the demand for this type of accommodation still exceeds supply.
Mick Joyce, Pam Golding Properties Cape Town Metro regional director, concurs: "We havent seen any fire-selling in spite of the huge increase in flat and townhouse development. Speculators have turned into long-term investors and resales have gone to owner/occupiers.
"There is also good take-up by tenants, many of whom are moving from older buildings into modern apartments with good security and additional features such as on-site gyms. These people are earning more and can easily afford the marginal rental increases."
Affordability is key
Joyce adds that affordability is the key issue: "New developments which are well placed and well priced walk out the door anything below a million rand. Middle-income earners are coming through the system.
In terms of the big picture, household disposable income is expected to grow at around 10 percent this year, which is good for the residential property outlook.
Also, the reduction in transfer duty has still to come through the system in terms of registered purchases, since the Budget announcement stipulated that the cuts would come into operation from March 1 resulting in many people quite wisely delaying their buying decisions.
Market varies between regions
However, it is important to note that while the statistics quote national median average house price growth patterns, there are noticeable differences in the respective growth paths across the provinces and in the major cities.
For example, there has been a continuous, gradual acceleration in property price growth in Gauteng, while there has been substantially more volatility in property price growth in the Eastern Cape and Limpopo. Income is an important cause of such variation.
Factors other than income which can cause differences across regions include the extent of urbanisation, the role of tourism and foreign home ownership and other economic factors such as the structure of production in the local economy and spatial phenomena. Here are the current trends in each of the nine provinces:
Mpumalanga and Limpopo
Article from: www.iafrica.com