House prices are likely to drop
House price inflation that is lower than consumer price inflation translates into a real decline for house prices.
FNB property analyst John Loos said there was nothing that could be done to boost the economy and raise house price growth.
“There are signs the markets are experiencing slow activity and the economy is still weak and deteriorating,” he said.
“We do not have a real boost left for the economy. We cannot cut interest rates and government has run up its debtto-GDP ratio significantly in trying to stimulate this economy since 2008. “There is nothing left in the pipeline that can be done.” Loos said South Africa was facing a real risk of a recession after the International Monetary Fund lowered the country’s economic growth forecast to below 1%.
“House prices have to follow the economy, and so real house price decline will occur as well. If we have a recession, it can translate to nominal house decline and actual price decline too – not just below inflation,” said Loos.
“Prices are not going to grow as fast as in previous years. This will make prospective homebuyers more comfortable because the prices are not moving to such an extent that properties will be out of reach in a short period of time.
“It should become a buyers’ market. The real house market decline should [make house prices] theoretically more affordable over time.
“But if economic times are tough, job creation is nonexistent and job losses become reality, people will not be able to afford property despite real house prices having dropped,” said Loos.
He added that foreign interest in local property would increase, as rand depreciation meant foreigners with dollars, pounds and euros found it cheaper to buy in South Africa.
Cape Town-based estate agents said foreign interest in local properties had peaked since December, when the currency began its recent rapid decline.
Pam Golding Atlantic Seaboard area manager Basil Moraitis said: “There has been a whole wave of foreign buyers showing interest recently, but very few are committing.
“They are looking, but no concrete deals have been done because they are hesitant about the rand. They are waiting for more stability and predictability in the market to see if the rand will stabilise.
“At the moment, it is too volatile and it puts people off buying. They want more certainty on how the rand will be.”
HOME, SWEET HOME
Although house prices in real terms are likely to decline, buyers will have to guard against being overindebted