How SA's property prices rank
The global housing market is likely to remain under intense pressure for the remainder of 2009, according to the Knight Frank Global House Price Index Q1 2009 report, released on Tuesday.
Lack of credit, uncertainty about the shorter-term future, especially the financial security and in some markets, oversupply and the cumulative effects of many years of strong house price growth has been blamed for the pressure seen in the global housing market. However, despite the sombre news there were still markets where house prices rose.
Israel was the top performer over the 12 month period (see table) with a house price record growth of 10.9%, followed by the Czech Republic at 9.9%. South Africa's year-on-year house price growth in Q1 was -0.3%, ranking it among the worst performers at number 16, an improvement from number 18 in the same quarter last year.
Countries that did worse than us include: Latvia (-36%), Dubai (-32%) and Singapore (-23%).
Nick Barnes, head of international research at Knight Frank, says a combination of factors many of which are apparent in other countries' residential markets contributed to the decline in house price growth in South Africa. These include: affordability, even though there have been recent interest rate cuts, mortgage interest rates remain high. South African banks have tightened their lending criteria and the level of household debt is significant in the country.
He reckons South Africa's economy is expected to contract this year, unemployment will rise, consumer confidence will suffer contributing to a decline in house price growth.
"There are signs of oversupply in the market which will serve to weaken prices," says Barnes.
Asked if housing markets in emerging markets, such as South Africa stand any chance of recovering, he says it all depends on the structure of the individual country's housing market and its broader economy.
Governments' reaction is critical as is the attitude of lenders towards developers with regard to debt repayment and buyers' concerns around mortgage, the timing and depth of the recession. He adds that the research does not subscribe to the first in- first out' theory with regard to timing of economic recovery, some smaller markets are undoubtedly better off than the US, although some are not.
"The inescapable trend is that the worst and most widespread economic recession since the 1930s continues to batter the housing markets across the globe," says Barnes.
The report suggests that there is a sporadic evidence of buyers snapping up relative property bargains. Of those buyers in a position to move, many are still waiting for clearer signs that markets are approaching the bottom of the cycle. In a falling market, sellers are usually forced to a greater or lesser extent which means that opportunities to buy are greatly reduced and transaction volumes correspondingly low, according to the report.
Apart from the economic slowdown, houses are still highly unaffordable in South Africa , caused by a growth in house prices over a number of years in excess of disposable incomes, says John Lottering from Rode & Associates.
He also says household debt levels are still high and the bank's tight lending criteria have contributed to this decline in house price growth as reported by Knight Frank.
Across the major regions in the country, the contraction in house prices are more pronounced. For example, according to Absa House Price Index Q1 2009, house prices in Durban and Port Elizabeth/Uitenhage contracted by 13% and 11% and this is most probably related to the fact that these two economies are very dependent on industry. In Johannesburg, Pretoria and Cape Town, prices contracted by 2.6%, 0.5% and 4.2% respectively, adds Lottering. -email@example.com
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Knight Frank Global House Price Index, Quarter 1 2009
Denise Mhlanga, debt, John Lottering, house prices, Rode & Associates, Knight Frank , Nick Barnes, incomes, economic slowdown, buyers, sellers, transaction volumes, housing markets, recession, US, developers, consumer confidence, interest rates, Absa House Price Index, lending criteria, Port Elizabeth, Uitenhage, disposable income 26 May 2009 26 May 2009
Article by: Jazial Crossley - www.realestateweb.co.za