The South African property market appears to be on the road to recovery with Standard Bank and First National Bank (FNB) revealing favourable year-on-year house price growth figures.
The Standard Bank House Price Index revealed a 9, 2% year-on-year growth in March this year, which was a considerable increase from the 6, 6% year-on-year growth it displayed in February. Standard Bank’s nominal index growth for freehold properties was 10, 2% in March from February’s 7, 2% year-on-year growth. The nominal index, pertaining to sectional title units, improved from 4, 9% in February to 6, and 4% in March.
FNB indicators also showed a growing residential market strength based on examining the house price data on a quarterly basis.
According to FNB’s household and property strategist, John Loos, FNB’s House Price Index showed a 2.2% year-on-year growth rate in March, lower than the 2.9% of the previous month, having followed a broadly slowing growth trend since a 7.7% peak in July 2012.
FNB’s growth rate figures were more conservative in March than Standard Banks’ and economists put this down to a discrepancy in sample sizes and different lending practises.
“However month-on-month growth is starting to accelerate in recent months, and I suspect it won’t be long before we have some improvement in this year-on-year growth rate. Our 1st quarter FNB Estate Agent Survey pointed to strengthening residential demand and growing supply constraints,” says Loos.
Hiccups in house price growths
Despite a positive surge there are factors that hinder consistent growth in house prices. According to Standard Bank’s research strategist, Sibusiso Gumbi, subdued trends on the supply front (i.e. construction) may be a source of upside pressure in the House Price Index. “The real value of new residential dwellings constructed experienced a slow year-on-year growth improving only by 1, 9 %,” said Gumbi.
He added that January 2013 saw 2,760 new residential units being constructed, which was an 87 unit decline from the 2,847 units constructed in January 2012.
Home loan growth has largely been subdued over the course of 2012 and this has continued into 2013, with January experiencing a 2.9% year-on-year growth and February’s 2.8% year-on-year growth.
“Household mortgages continue to trail all other categories of extended household credit. Despite the most recent blip in house price growth, we are wary of assuming this as an overall trend. Pre-existing household debt balances in particular, which amount to 75.8% of household disposable incomes, serve as a notable challenge. The House Price Index is therefore likely to post only single-digit growth in 2013,” said Gumbi.
Loos echoed this sentiment saying that he still expects single-digit house price growth for the next few years.
“The reasoning is that the household sector is still highly indebted and financially frail, our own economy looks set to grow mediocrely at best, and we expect an interest rate hike from later next year,” says Loos.
To fix or not to fix
Although Loos does not recommend fixing or floating rates to clients, he says the choice depends on the client’s financial strength and appetite for risk.
“If they do want to fix, they’ll probably get more attractive fixed rates now than they will once interest rates actually start rising. Fixed rates depend on market expectations of interest rates, and once the hikes have started those expectations deteriorate,” says Loos.
According to Loos it has been possible to obtain 100% loans for few years now, but many loans do still require deposits.
“Loan applications are dependent on a combination of the client’s credit repayment record, affordability, disposable income and the quality of the property in question,” says Loos.