Guiding consumers since 2009

What will house prices do in 2014?

By Staff Writer

By Angelique Ruzicka, editor,

Some believe that buying a property (whether it’s a house or a flat) is a good investment because properties generally go up in price. Tell that to the poor people who bought their homes at the height of the boom in 2007, only to find house prices drastically dipping since that year when the world experienced a global financial crisis in 2008.

The good news for those homeowners is that property prices will go up again this year - or so the experts tell us. According to the FNB Property Barometer’s House Price Index released on 7 January 2014, the average house price growth rose by 6.8% in 2013, compared with growth of 7.1% seen during 2012.

The consensus is that a single digit growth for 2014 is to be expected. “Overall, what we see is an improvement of the housing market and 2014 is a continuation of that improvement with no spectacular fireworks. If you take inflation into account, property price growth will be just above inflation,” says Steven Barker, head of home loans at Standard Bank.

The average price of homes transacted during 2013 was R891, 976, compared with R835, 480 in 2012 according to FNB’s Property Barometer. Homeowners who bought their homes more than a decade ago should be smiling as the price for a home in 2013 was 42.6% higher than the price seen in 2003. However, those who got onto the property ladder after the boom in 2007 are still in recovery with house prices 18.5% lower in 2013 than 2007.

But the key is not to wait in the wings until the next boom reckons Adrian Goslett, CEO of RE/MAX of Southern Africa. “Although property prices are currently seeing single figure growth, the compound effect of the upward growth trend of property prices will positively impact on the homeowners net worth in the future.”

Rural vs. coastal
However, experts are pointing out that the growth in house prices will not be universal and that pockets will experience more growth than others.

Homes in rural areas won’t necessarily see any major increases in value. “Nationally house prices will continue the slow and steady recovery that began in 2013.   However, this year, metropolitan areas are likely to see real growth in house prices, in other words prices that beat inflation.  The picture is different for rural and coastal areas, where growth in prices is unlikely to beat inflation,” says director of Jawitz Properties, Francois Venter.

Interest rates
The prime interest rate is currently 8.5% - the lowest it has been since 1973. The bad news is that some are predicting a possible increase in interest rates in 2014. “Overall views on interest rates are that they will remain unchanged,” says Barker. “The exchange rate is the one we are watching. Things should remain flat but the consumer should not take [these rates remaining unchanged for now] for granted.” Goslett advises consumers and homeowners to prepare for the possibility of an interest rate change by paying down as much debt as possible.

Access to finance
After house prices fell during the Global Financial Crisis, banks clammed up and tightened their lending criteria. However, some have started to relax and this is likely to continue into 2014.

“With high value properties from R3 million plus banks usually want a 20% deposit but most activity under R3 million requires a 10% deposit. However, there are people getting 100% bonds. You do get a more favourable rate though if you put down a deposit,” points out Barker.

Trends and predictions
Security and gated communities are likely to increase in popularity with more South Africans valuing security as a top priority. Goslett believes that demand will grow in areas that cater to these sectors of the property market, which in turn will push up prices in these areas far quicker than the average.

“We are also likely to seen an increased trend towards smaller or more manageable homes in 2014, with consumers opting for properties that are closer to their needs such as their place of employment, their children’s schools and other amenities like shopping centres and medical facilities,” he says.

Goslett concluded that these predictions will be dependent on and driven by consumer sentiment, which will be fuelled positively or negatively by factors such as the run up to elections, status of labour unrest and various other scenarios.

But he feels that in spite of the risks, real estate is a good investment. “Regardless of the conditions we find ourselves in during 2014, historically real estate has proven a good investment over the long term and with good research and savvy choices, buyers will find some good opportunities in the property market in the year ahead.”

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