There is panic on the home front in South Africa.
Industry players say the markets been flooded with housing stock since January, raising concern that this countrys housing slump could be far more painful than had been anticipated.
Finweek reports this week that realtors say South Africas housing correction is far deeper and far wider than generally perceived and that the market could even be heading for a crash. The magazine says that South Africas housing market has moved so rapidly over the past two months that statistical information available from banks and economists is outdated it suggests that real time trends emerging at auctions provide a more reliable picture of the current state of South Africas property market.
In an interview with Rael Levitt of Alliance Group, he maintains that residential property values are already falling. He reckons house prices have dropped between five and 15 percent over the past year, depending on the area. Sothebys International Realty chairman Lew Geffen places the drop at between 10 and 15 percent, with Cape Towns Atlantic seaboard being the only exception. Sellers dont realise how bad the situation is, says Geffen. Growth isnt merely slowing prices are actually falling.
Other estate agents say its too early to determine whether house prices are indeed dropping. However, what everyone does agree on is that this months rate hike the latest of nine consecutive 50 basis point increases since mid-2006 couldnt have come at a worse time for an already depressed housing market.
Sales throughout SA down by 40 percent
Samuel Seeff, chairman of Seeff Properties, says while theres been a dramatic increase in houses coming on to the market since the beginning of this year, sales volumes have plummeted. Seeffs property listings swelled from around 18 000 a year ago to the current 27 000 a 50 percent increase in sales stock. At the same time the groups sales volumes dropped 27 percent in first quarter 2008 (year-on-year). Seeff estimates that overall housing sales throughout South Africa could be down as much as 40 percent.
According to Finweek, several factors have come to the fore simultaneously in December last year that dealt market sentiment a massive blow. Those included South Africas uncertain political outlook following the ANCs Polokwane congress, corruption charges against ANC party president Jacob Zuma and Police Commissioner Jackie Selebi, electricity supply cuts, a weaker rand, wobbly stock markets, yet another interest rate hike early in December and, of course, ongoing crime. Estate agents fear that consumers feel that Government doesnt have the ability to fix those problems. Some realtors have seen a 40 percent rise in the number of houses for sale from the beginning of this year.
Whats particularly alarming is the increase in the number of people offloading properties because theyre emigrating an estimated 25 to 30 percent of current sellers are planning to leave South Africa.
The Alliance group has never seen such a sudden surge in distressed sellers
Levitt told Finweek that the Alliance group has never seen such a sudden or huge surge in distressed sellers, as has been the case since January this year. The companys forced sales book was up 50 percent on an annualised basis in January and rising 30 percent month-on-month since. Distressed sales include foreclosures (properties repossessed by banks), insolvencies or homeowners selling on their own accord, where they can no longer afford monthly mortgage repayments or plan to emigrate.
Levitt says most distressed sales are happening in the R2-million to R5-million price bracket. Absa South Africas biggest mortgage lender, with a home loan book of R204-billion told Finweek it has seen a 35 percent rise in delinquencies over the past year.
In addition, building activity is dropping, with actual residential completions expected to decline noticeably this year as builders face increased supply side shortages, such as municipal bulk infrastructure and electricity cuts.
Economists told Finweek that demand for housing will continue to grow over the longer term as the inflow into South Africas cities and economic expansion continues. These factors together with the housing backlogs from the past yet to be addressed suggests a robust long-term housing demand picture thats likely to be only temporarily interrupted.
However, the immediate outlook for a recovery in property demand remains bleak. Most property commentators even self-confessed property bulls such as FNB property strategist John Loos agree that the markets likely to remain stagnant for at least the next 12 to 18 months.
The latest interest rate hike raises the risk of national price
deflation and will considerably delay the recovery in residential demand,
says Loos to Finweek. Scenario planning to allow for the possibility
of further rate hikes would be advisable.
Article from: www.iafrica.com