SA market stays flat, says expert
Property professionals comment on real estate trends around the globe, writes Anna-marie Smith
WHILE economists are heeding caution amid gloomy foreign economic conditions, property professionals assess historic and current market trends locally and in the US.
FNB’s July house price index reports that SA’s property industry, while showing slow recovery patterns, is likely to experience pressure resulting from world’s biggest economy, the US, and the European economies, coming under pressure.
FNB Home Loans property strategist John Loos said last week: “Looking ahead to the end of this year and into next year we continue to anticipate a very flat residential property market.”
Although the FNB house price index shows mild acceleration in its year-on-year growth rate in recent months, the July 2011 economic indicators show increased pressure on the residential market in the near term.
The report shows that the July growth rate moved to 4,6%, the highest rate of growth since August last year, which was at 3,1% in June 2010.
Highlighting the effects of interest-rate cuts, FNB reports that mild acceleration in the yearon-year growth rate in house prices in July is believed to be largely the lagged impact of slightly stronger demand during the summer quarters as a result of late-2010 interest-rate cuts.
Real estate experts say the US Federal Reserve’s recent undertaking to fix interest rates at 1% for the next two years will offer some respite against a possible double dip in the global economy.
US interest rates were not the cause of its property woes but rather the Federal Reserve’s irresponsible relaxation of stringent lending criteria policies, says property expert Steve Murray, of Real Trends in the US.
He was guest presenter at RE/MAX Properties’ conference in Cape Town last week.
He says: “While holding interest rates for two years will improve market recovery opportunities, what caused the collapse of the US property market was the Federal Reserve’s loosening of stringent underwriting lending policies, originally put in place 50 years ago for the very purposes of preventing a market collapse.”
He says the concept that owning a home is a good thing led to low-income families buying homes with 100% mortgages. This lead to the famous NINJA mortgage plan of no income, no job, no asset, as did another exotic lending plan, ALT-A Mortgage, with loan re-payments not being recalled for two years, and interest only becoming payable in year three, on the assumption of a mar- ket recovery and ensuing profits.
Real Trends research shows similar trends in 16 other countries, including Spain, Portugal, Greece, Italy, Ireland, China and most of Europe.
Murray says the high number of US buyers who should never have been allowed to own homes is seen in current sales of new and existing homes at about 5,3-million to 5,4-million, compared with sales at the height of the property boom in 2005 of 8,4-million and 9million in 2006.
He says while US property prices are still heading downwards, for the first time in six years unit sales in July this year are up by about 5% compared with the same period last year, possibly resulting from the federal government’s recent introduction of tax credits, providing more disposable income for property investments.
With unemployment at 9,2%, current predictions are for a slow recovery of the US property market, estimated to be up by about 3% for this year. Market trends show investors being lured into buying smaller, single homes for rental to non-owning families. The US construction sector is being stimulated by high demand for apartment accommodation.
According to the FNB property barometer, local market trends reflect similarly in SA’s lowerincome segment, which has shown improved price growth since early last year. This year’s second quarter segment house price and market strength report indicates that on a year-on-year basis, in affordable areas where house prices average R376 974, average prices grew by 7,4% and in middle-income areas where prices average R724 136 average prices grew by 5,7%.
During the same period, smaller properties averaging R412 994 recorded the best year-on-year price growth of +3,3%.
There is a trend to address gap areas in housing markets such as the affordable housing sector.
Similar to SA’s Department of Housing and Settlements’ introduction next year of an insurance back-up for banks’ lending to lowincome earners, the US Federal Housing Administration has introduced mortgage insurance. This insurance only applies to approved building structures with sound electrical and water installations, while insurance funds are accrued from bank loan charges and lending fees.
Another US state measure to boost affordable housing is a rental subsidy system for those able to prove financially stability. They qualify for rentals to be deducted from the purchase price, leading to an increase in the number of home owners without causing market distress.
Home sweet home will probably remain just that as property prices are expected to remain under pressure, with little prospect of boom conditions returning in SA or worldwide, according to a number of property professionals.