No recession on cards for property market

By Staff Writer

The residential property market is expected to experience a relatively mild cyclical downturn rather than a full blown recession, says Sizwe Nxedlana, Standard Bank Property Economist.

"Given the current dismal house price growth currently being experienced in South Africa, the question of whether or not the South African housing market will experience a deep recession similar to that being experienced in the US housing market is being asked with increasing frequency.

"However, our analysis of the sources of the recession in the US housing market and it subsequent transmission mechanism to the rest of the US economy suggest that South African residential property will experience a relatively mild cyclical downturn rather than a full blown recession," says Nxedlana in the latest Standard Bank Property Gauge, released on Monday.

The Standard Bank median house price index recorded negative year-on-year growth for the second consecutive month. The Standard Bank median house price fell to R530 000 in April from R550 000 in March. The April median house price of R530 000 translates into a growth rate of -8.6% year-on-year when compared to the median price recorded in April 2007.

The five month moving average growth rate declined to -2.8% year-on-year in April. However, these figures should be interpreted with caution before any assumptions are made, according to Nxedlana.

He says: "A relatively high base value from which the latest and pending year-on-year growth rates is calculated was established last year. The establishment of the high base was primarily due to the temporary upward adjustment in the distribution of mortgages entering Standard Bank's home loans book in the months leading up to the introduction of the National Credit Act(NCA). The uncertainty preceding the implementation of the NCA incentivised the prioritisation and increased the urgency by market participants to conclude higher valued housing transactions in order to circumvent the possibility of stricter lending standards post implementation."

The distortive base effects may continue to impact the point estimates of the monthly median house price in May, June and possibly July suggesting further negative year-on-year growth rates in those months. The implication of all of this is that there may be an overestimation in the extent of the decline in house price growth.

Leon Barnard, Director Standard Bank Personal and Business Banking Products says: "Property remains the one of the best investments and over time has shown very good returns. There is no denying that South African consumers are starting to feel the pinch of higher inflation and the higher interest rate environment.

"There is also no denying that property prices have cooled off dramatically in the past few months as a consequence of these environmental pressures. While these numbers might raise some concern there are a few important factors to bear in mind. Firstly, it is the upper most sector of the property market that has cooled off the most. We are starting to see increased levels of activity in the lower property segments. It's not all doom and gloom. Standard Bank is actually quite pleased with the performance and resilience currently being seen in the lower spectrums of the property market."

The recent trends in house price growth, when compared to trends in the US and the growing impact of the sub-prime crisis could at first glance seem ominous for the outlook for South African residential property. Increasingly, there are comparisons being made between the sub-prime induced housing recession in the USA and the current challenging conditions facing the South African housing market.

"The overall downward trend is still reflective of the sharp fall in demand due to the reduction in housing affordability which is a function of other well documented factors constraining the ability of consumer to purchase residential property," says Nxedlana.

Recent Articles

Featured Your guide to debt counselling

The National Credit Regulator (NCR) reported more than 20 million consumers to be in debt in 2018 and 40% of them were behind with their payments. Due to the economic conditions in the country, many consumers find themselves incurring too much debt that they cannot repay.

Read more

Should you take a sabbatical this year?

In South Africa, sabbaticals are not as common among the general workforce – but they have become popular among executives and CEO’s. Justmoney finds out what a sabbatical is, how to convince your employer to let you take one, and how to manage your finances before and while you’re away.

Read more

A photographer’s journey into entrepreneurship

This week Justmoney chatted to this 25-year-old to understand what makes her tick, what her thoughts on money management are, and the financial advice she has for other young entrepreneurs.

Read more

Travel insurance through medical aid: Is it enough?

Having travel insurance as an added benefit with your medical aid is common practise, but what does it cover and is it enough?

Read more

Sign Up

To our weekly newsletter for advice you can bank on

Deals

Steers Varsity Cup Monday Madness

Price: R59
When: Mondays
Where: Kimberly

Old Mutual Actuarial Bursary

Price: R0
When: 26 March - 30 May
Where: Nationwide

Tsogo SunBreaks Vacay Special

Price: R1,115 per room
When: 15 -31 March
Where: Gauteng, Cape Town, and Durban