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Property market growth looks set to continue

By Staff Writer
During 2014 the residential property market continued to strengthen from 2013, with this growth set to continue in 2015. According to the FNB Property Barometer, this is in large part due to the decrease in oil prices, as well as a decline in global food prices.
 
Since the dramatic drop in the housing sector in 2008, there has been a steady increase in many sectors of the property market. 2014's rate of improvement in the FNB Valuers Market Strength Indices exceeded that of 2013.
 
The Market Strength Index runs on a scale from 0 to 100, with a level of 50 indicating that the market is well balanced with supply and demand for property. In 2014 this number was up to 50,44 indicating that the market has greatly improved from previous years.
 
In 2008 the Market Strength Index was at a level of approximately 55, but dropped substantially in 2009 to a level of approximately 45, where the number of houses on the market far outweighed the demand.
 
House prices increase
 
Despite a gradual decline in house price growth for the first part of 2014, December 2014 saw the average house price rise by 6,87 per cent year-on-year. During this time, the average price that a house sold for was R985 405, which is a drastic increase from the average cost of a house in 2013 of R891 929.
 
Another contributing factor to the booming residential property market is the stable repo rate and interest rates, which has resulted in a drop in inflation. This has resulted in decrease in people's household debt-to-disposable income ratio from 89,3 per cent in 2008 to 78,3 per cent in 2014, which is good news for consumers.
 
Furthermore, the average time that a property remains on the market has decreased in recent years. In 2014, a property spent an average of 11 weeks and four days on the market prior to selling, which is down from approximately 16 weeks in 2013.
 
There has also been a decrease in the average percentage drop in asking prices from -10 percent in 2013 to -8 percent in 2014, meaning that sellers are getting offers closer to their original asking price.
 
The year ahead
 
Looking forward to 2015, the property market is expected by FNB to continue to perform positively, with average house prices likely to increase. Recent developments, such as the declining global oil price, and the Rand performing better in the global market could make 2015 a good year for the residential property market provided, of course, that the South African Reserve Bank doesn't increase the repo rate by too much this year.
 
The FNB report showed there is some indication that fewer people will be able to afford a home. "Therefore, the most recent data points to 2014 as being a year where we started to see indications of mild deterioration in various Residential and Residential-related affordability measures.
 
"This comes after dramatic affordability improvement through 2008-2011, as interest rates came down and house price growth was anaemic. Then, times began to change around 2012 as the residential market started to strengthen more noticeably, house price inflation became more rapid, and interest rate cuts ended and then more recently actually rose slightly," explained John Loos household and property sector strategist at FNB Home Loans.
 
He added: "Looking into 2015, we expect a further slow affordability deterioration, based on our projection of slightly higher house price growth in the region of 8-9%, and the expectation that average employee remuneration growth will not quite keep pace."

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