House prices are likely to drop

CityPress - - Business -

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.”

PHOTO: ISTOCK

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Al­though house prices in real terms are likely to de­cline, buy­ers will have to guard against be­ing overindebted

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