Good 2014 on the cards for house prices
Promising economic signs amid housing shortages mean residential property values will grow well next year, say agents
PREDICTING the future is no easy task, but some property professionals are prepared to stick their necks out and have their say.
Absa has predicted a 9 percent increase in residential property prices in the coming year, and Bill Rawson says this is absolutely spot on.
“All the indicators now point to 2014 being a good year for residential property and those aware of the market trends should be buying right now,” he says.
The factors promoting steady growth in house prices in Rawson’s view are:
● The strong likelihood of inflation being contained below 6 percent and therefore interest rates remaining low for most of next year.
● Increased infrastructural spending and the resultant job creation.
● Growing shortage of homes and the resultant willingness of buyers to pay more than the previous prices.
● Capital growth potential in housing in South Africa.
“With current and fixeddeposit bank accounts as well as many other traditional money markets often giving very low returns, it makes sense to buy bricks and mortar. For the uninitiated investor, a capital growth of 9 percent a year is not to be overlooked, especially as this type of investment is relatively safe.”
Rawson predicts that the strongest demand for homes countrywide will be in the R250 000 to R500 000 bracket, followed by an almost as strong demand in the R500 000 to R1.5 million bracket. At the same time, he says there is clear evidence that in the upper brackets demand and sales figures are also improving.
Rawson says an encouraging sign is that the number of bonds issued a month has now, for the first time in three or four years, topped 20 000 and, with the banks’ new attitude to borrowers, this figure is likely to rise further. However, he points out that it is still well below the 40 000 bond mortgages made each month in the boom of 2006 and early 2007.
The chief executive of MSP Developments, Riaan Roos, sees signs of the start of a major uptick, but says there are still challenges for buyers.
MSP Developments has built more than 4 000 homes since 2001. The company is the creator of Buh-Rein Estate, the largest private development in the Western Cape, as well as many other affordable housing developments.
Roos says that in the last four to five months MSP’s sales picked up considerably and he believes this will continue.
He says MSP’s big challenge is still getting final financial approval for potential buyers.
“Sometimes clients who have signed offers to purchase go through the whole approval process and then fall at the final hurdle, since the banks now generally require deposits of 10 percent to 15 percent of the purchase price. For example, on our development Belladonna Estate in Blue Downs only 40 percent of sales finally go through.
“We really need the banks to be more lenient on the scorecard so that more clients can get 100 percent bonds. MSP is investigating a number of ways
‘Although prices are only expected to grow by single digit percentages during 2014, they are indeed on an
to see how we can help bridge that gap for clients while remaining compliant with national credit regulations. So my advice to those who get end-of-year bonuses and are considering owning their own homes is to save that bonus towards the deposit.”
Roos says that another sign of improvement is that smaller developers that disappeared in the last few years are starting to come back into the industry.
Adrian Goslett, chief executive of RE/MAX of Southern Africa, says it is very difficult to predict exactly what the future holds, particularly considering the many uncontrollable variables that can affect the property market.
Although the prime interest rate is currently at 8.5 percent, the lowest it has been since 1973, economists predict the interest rate will probably rise late next year. Goslett advises consumers and homeowners to prepare for this by paying off as much debt as possible.
“As demand for property grows and stocks deplete, we are likely to see higher prices. Although prices are only expected to grow by single-digit percentages during 2014, they are indeed on an upward trend, and that is not likely to change,” says Goslett.
“The stronger demand for property and inventory stocks depleting will bring about further opportunity for the construction of more homes and developments, giving buyers further property options during 2014. Buyers who were reluctant to invest in the property market during 2013 will still have viable property options in the future, although at a higher cost.”
Goslett says that over the past year the banks have marginally relaxed their lending criteria, and this is likely to continue next year.
“Banks’ desire to lend will increase marginally next year, depending on how the new credit amnesty bill affects them. The percentage of loan application approvals has increased to over 51 percent, which is a huge improvement from the 26 percent during 2009,” says Goslett.
He believes there will be more cash buyers next year.
“There are many affluent property buyers and investors with the means to purchase property, but they have been waiting in the wings to see which way the economic winds will blow before committing. With a more stable environment and property prices on the rise, these buyers will more than likely take advantage of the improving market.
“Security and amenities will continue to be top priorities, with a likely increase towards security and gatedtype communities next year, as more and more South Africans point to security as their number one priority when choosing where to live. Demand will grow in areas that cater to these sectors of the property market, which in turn will push up prices in these areas faster than the average.”
He expects a move toward smaller or more manageable homes next year, with buyers opting for homes closer to their jobs, schools and other amenities like shopping centres and medical facilities.
He says that all of these predictions will largely depend on consumer sentiment, which will be affected by factors such as the run- up to elections, labour unrest and various other possible scenarios.
“Although it’s impossible to predict what will happen in the legislative environment, general economic conditions and political issues, we can control how we react to changes in our environment and adapt.
“Regardless of the conditions during 2014, historically property has proved to be a good investment over the long term and with good research buyers will find some good opportunities in the property market in the year ahead. South Africa’s property market has returned to normal and is doing well. It is expected that the market will continue on its current path of normal trading conditions in the year ahead, with no massive peaks or lows,” Goslett says.