Correction...or crash?

By Staff Writer

From iAfrica.com Property 22 Apr 2008

Industry players say the market's been flooded with housing stock since
January, raising concern that this country's housing slump could be far
more painful than had been anticipated.

Finweek reports this week that realtors say South Africa's 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 Africa's
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information available from banks and economists is outdated - it suggests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 Africa's 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. Sotheby's International Realty chairman Lew Geffen places the drop at between 10 and 15 percent, with Cape Town's Atlantic seaboard being the only exception. "Sellers don't realise how bad the situation is," says Geffen. "Growth isn't merely slowing - prices are actually falling."

Other estate agents say it's too early to determine whether house prices are
indeed dropping. However, what everyone does agree on is that this month's
rate hike - the latest of nine consecutive 50 basis point increases since mid-
2006 - couldn't 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 there's been a dramaticincrease in houses coming on to the market since the beginning of this year, sales volumes have plummeted. Seeff's 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 group's 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 Africa's uncertain political outlook following the ANC's 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 doesn't 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.

What's particularly alarming is the increase in the number of people
offloading properties because they're 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 company's 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 Africa's 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 Africa's 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 that's 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 market's 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."

 

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