In­ter­est rates are down, but buy­ers are still cash-strapped

Weekend Argus (Saturday Edition) - - PERSONALFINANCE -

In­ter­est rates are at their low­est level in three years, but house­holds are still not in a po­si­tion to take ad­van­tage of the im­proved af­ford­abil­ity, and house price inflation is ex­pected to re­sume only next year.

John Loos, First Na­tional Bank’s prop­erty an­a­lyst, says that signs of a mild in­crease in the de­mand for res­i­den­tial prop­erty are al­most solely due to the in­ter­est rate cuts. How­ever, real house­hold in­come has ac­tu­ally been de­clin­ing due to job losses, de­te­ri­o­rat­ing dis­pos­able in­come and weaker in­vest­ment in­come flows.

As a re­sult, “it is prob­a­bly re­al­is­tic to ex­pect house prices to con­tinue de­clin­ing, al­beit at a slow­ing rate, in the sec­ond half of the year,” Loos says.

Ac­cord­ing to the lat­est Stan­dard Bank prop­erty re­port, house­holds owe banks a to­tal R1.2 tril­lion, of which 70 per­cent rep­re­sents home loans. About a third of South Africans with im­paired credit records are more than three months in ar­rears with their debt re­pay­ments. With house prices still de­clin­ing, the wealth base of house­holds is com­pro­mised, putting fur­ther strain on house­holds.

Ac­cord­ing to the Stan­dard Bank prop­erty re­port, this will make for only a mild re­cov­ery in the prop­erty mar­ket, which is un­likely to gather any trac­tion this year.

Saul Gef­fen, the chief ex­ec­u­tive of ooba, says there has been a slight im­prove­ment in year-on-year house prices for the sec­ond time in two months. “Al­though it would be pre­ma­ture to sug­gest that this is an in­di­ca­tion of a re­cov­ery in the prop­erty mar­ket, the mild in­crease is en­cour­ag­ing,” he says.

Ac­cord­ing to the oo­barom­e­ter, the av­er­age pur­chase price of a house was R775 172 in July this year, com­pared with R767 266 in July last year. How­ever, the month-on-month av­er­age pur­chase price de­creased in July by 1.1 per­cent to R775 172 from R784 427 in June.

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