SA's best and worst property performers Investments

Residential property prices are generally heading into negative terrain, with the numbers set to look worse before they get better. But some owners must still have smiles on their faces, suggests new data released this week.

Lightstone Risk Management's latest repeat sales house price index, which is based on Deeds Office data up to the end of May and other sources, shows house prices dropping much more rapidly than in previous months.

The property data provider expects the "downward trend in house price inflation to persist for some time", with SA Reserve Bank lending statistics and "sales in execution" notices indicating that "borrowers are under increasing strain" - a situation that won't be resolved until interest rates start ticking downwards.

Interest rates have marched up about 5% in the past two years, effectively increasing mortgage repayments by more than 30%. Home-owners have been under additional pressure thanks to soaring food and fuel prices.

Andrew Watt, director of Lightstone, notes too that people tend to default on other types of debt before they get behind on home loan repayments, and interest rate increases have a lag effect on the economy.

Property owners and investors who have been best-off in current tough conditions are those in the affordable market (less than R250 000), with Lightstone's number-crunching showing that year-on-year prices are up about 20%. Lightstone's monthly analysis suggests this picture is changing quickly, though, with price inflation set to drop dramatically for that market sector.

"All of the other segments tracked are growing in the 1-7% range with several now very close to annual zero growth," says Watt. For example, KwaZulu-Natal's price growth is around 1% and the high value segment (R750 000 to R1,5m) is about 1,4%.

Lightstone says the best-performing areas are:

  • The Eastern Cape at 6,6%, when looking at the major provinces (Western Cape: 4,9%; Gauteng: 4,1%); and
  • Cape Town (4,7%), when comparing various municipal areas.

The worst-performers are:

  • KwaZulu-Natal, of the major provinces; and
  • Properties in the Tshwane municipal area (2,7%).

Wealthier property owners are not coming out of this residential market recession unscathed, with the luxury band (properties with a price of more than R1,5m) nudging up a mere 2,7% year-on-year.

The coastal property market, which has a significant portion of holiday homes and is therefore dependent on discretionary spending, has taken a beating, according to estate agents - and the Lightstone index confirms this. Figures show a big drop in annual house price inflation from 6% to 3% in May for this type of property.

"Looking at the most recent month's performance, coastal properties dropped 13,8% in value on an annualised basis," points out Watt, of properties within 500m of the beach.

From mid-2005 as inflation and interest rates started to rise, prices at the coast have come under pressure as owners found it harder to afford second properties, he says.

Perhaps surprisingly, given the demand for them, sectional title properties are not faring as well as freehold. Year-on-year, says Watt, prices have gone up 5,6% for freehold versus 3,5% for sectional title.

"This could possibly be explained by the large numbers of new developments that have come onto the market in the last few years which may have depressed repeat sales inflation for sectional title properties," he says.

To access the Lightstone table of performance across the country and for various market segments, see below...

17 September 2008 Lightstone Risk Management, Reserve Bank 17 September 2008

Article from: www.realestateweb.co.za