Distressed properties keep house price excalation down

According to South Africa’s leading bond originator, Betterbond, the steady rise in mortgage loans granted since December last year indicates that property purchasers are still taking advantage of the buyer’s market which is expected to continue for the remainder of the year.

Betterbond’s Dealmaker Dashboard shows a 51% increase in the number of applications processed by the group for the period September 2009 to March 2010 with the banks decline ratio on home loan applications currently at 40%.

“The average home loan amount falls within the R600 000 price range while the average house price according to formal grants is estimated at around R830 000. That said, it is clear where most of the market activity is taking place,” says Rudi Botha, CEO of Betterbond.

Botha cautions investors however not to stretch themselves too far “as the truth of the matter is that South Africa still has an incredibly high household debt ratio and affordability will remain a fundamental element in the property market going forward,” he says.

He adds that although there is currently a high number of distressed properties at relatively good prices for sale, investors should make sure that they are buying properties that will provide them with a good return on investment. “Property is a long-term investment, which is why investors need to ensure that they can afford all related expenses that come with buying and owning property,” notes Botha.

It is interesting to note however that while a buyer’s market prevails, some estate agencies around the country are reporting a shortage of stock in well-priced properties in certain areas. According to RE/MAX of Southern Africa, residential properties in the R1.2-million price range currently sell within six to eight weeks, indicating that demand in certain areas currently outstrips supply. “Even though this may well indicate that buyers wanting to invest and see a good return should contemplate doing so within the next month or so, we strongly believe that there will only be a slow turn towards a seller’s market late-2010 or early-2011 depending on macro-economic factors such as inflation and interest rates of course,” says Adrian Goslett, CEO of RE/MAX of Southern Africa.

The constant flow of distressed properties into the market however is expected to keep the lid on dramatic house price escalation for now.

Article by: www.betterbond.co.za