Scary property stats: SA vs the world

Another interest rate hike spells "disaster" for the property market - warning.

Top auctioneer Rael Levitt has warned that another interest rate hike will be disastrous for the property market.

Research from Levitt's Alliance Group suggets that more than 55 000 people will "suffer mortgage stress" this year, of which 15 000 will expereince "severe stress" and 8 000 could lose their homes.

He highlighed "just how savage our interest rates are" with some comparisons between South Africa and elsewhere in the world.

Official repo rates in the US are 2,25%, in Canada 3%, in Britain 5% - which is vastly lower than South Africa's 11,5%. The repo rate is below what you can expect to pay on a bank loan. The prime rate charged by banks is about 15% and goes up each time the repo rate is lifted.

Levitt said that if the repo rate goes to 12%, "this may strike another fatal blow to the residential property market".

"South Africans are already paying five times the repayment of American property owners. So it's not surprising more and more consumers are falling into arrears."

The Alliance Group's reseach indicates that Johannesburg property prices fell by 5,5% in the March quarter, while Cape Town's prices dropped by 4,85%.

Levitt believes that the pain of higher interest rates has only just started to kick in and believes that we will see further residential value falls over the next 6-12 months and another hike will simply speed up this process.

"The South African housing market is in a bind - we have a historic housing shortage and thus huge demand at the entry level but that isn't going to stop prices declining further. I think we'll see prices fall by another 5% this year - and that's without another interest-rate rise," he said in a statement.

"If rates rise again it will accelerate price declines, and that's an ominous prospect because price falls can be infectious," Levitt noted.

"If one house in a street sells for a lower than expected price, that can have a knock-on effect to other properties in the same area, and so it goes on."

The combination of a decreasing property values with increasing interest rates has put the residential property market in a precarious position this year. Anecdotal reports of rising repossessions and a surge in forced sales is now spreading to various parts of the property market particularly those in the R2million to R5 million valuation range, said the Alliance Group chief executive.

"Mortgage stress is spreading across all cities, suburbs and demographics. Over geared middle income families are obviously the most vulnerable but wealthier South Africans are now also being affected by a slowing residential property market'', he added.

Article from: www.sapropertyinvestor.co.za