House prices set to slide this year

Property outlook deteriorated

SOUTH Africa’s residential property market is facing the prospect of real price deflation over at least the next 12 months. Real house price growth entails adjusting price growth to take into account the impact of inflation.

Credit ratings agency Fitch Ratings said yesterday that the outlook for residential property and mortgage markets in South Africa this year had deteriorated from a year ago and they did not expect any real house price growth this year and a decline of about 3 percent in 2017.

Fitch’s view was based on the weak growth prospects for the economy and household incomes plus the prospect of further monetary tightening.

Jacques du Toit, a property analyst at Absa Home Loans, said real house price deflation was projected over the next 12 months.

Little growth

John Loos, a household and property sector strategist, said earlier this month that with the risk of recession significant and slow positive growth appearing to be the best scenario, there appeared to be little to support average house price growth at recently positive real growth rates.

Fitch said this year might see a turning point in the post crisis trend of improving mortgage performance as rates rose from an already relatively high level.

“We think installments on a typical mortgage loan will increase by 5 percent to 10 percent by end-2016, hampering the ability of low income borrowers to pay. Job losses in key sectors, such as mining, might also affect performance. New lending is set to slow after accelerating (against our expectations) in 2015 in line with nominal house price growth.”

Du Toit said the year-on-year growth in the average value of middle segment homes in the South African residential property market was markedly lower last year, with nominal home values increasing by about 6 percent after achieving price growth of 10 percent in 2013 and 9.3 percent in 2014.

He said nominal house price growth was forecast to average about 5 percent this year.

Rhys Dyer, the chief executive of mortgage originator ooba, said slower economic growth and exchange rate depreciation, which would drive inflation increases and consequently interest rate hikes and a higher cost of living, were likely to result in a slowdown in demand for residential property this year.

He said this expected slowdown in demand, coupled with some improvement in property supply levels, would begin to impact property price growth, but ooba did not foresee significant reductions in property price growth this year.

He said property prices had been growing at between 6 percent and 7 percent and ooba expected this growth rate to deteriorate slightly this year to between 5 percent and 6 percent.

Neville Berkowitz, a property economist and adviser to low commission estate agency HomeBid, expects the housing market to deteriorate this year because interest rates were anticipated to rise by between 1.5 and 3 percentage points during the year.

He said the reduced affordability of existing and first time homeowners would translate into a buying down in the market, with more activity in the more affordable part of the market.