Weekend Argus (Saturday Edition)
Confidence seems shaken...
But it’s too soon to tell the impact of political changes on the market
IT’S TOO early to tell from the upbeat FNB April house price data how policy developments, including the cabinet reshuffle and subsequent ratings downgrades, will play out on sentiment within the household sector and the housing market.
In fact, the FNB House Price Index for April shows some further acceleration in yearon-year growth compared with the March rate, after having gone through a dip late last year, says John Loos, FNB household and property sector strategist.
It will take a few months to see the impact on the property market of recent political developments.
Loos says the strengthening in April “appears to be tracking recent signs of strengthening in the domestic economy…”, but political developments are key risks to both these areas.
“Given the widespread publicity that such policy developments are receiving, however, it is conceivable that they could have an impact on consumer/ household sentiment, causing a more cautiously spending consumer to emerge. That could be a dampener for the housing market in coming months.
“For these risk reasons, we are not in a hurry to alter our mediocre average house price growth forecast of 3% for the entire 2017, despite recently strong year-on-year numbers,” says Loos.
The political and economic events seem to have shaken the confidence of prospective homebuyers, and this is reflected by a decline in the number of home loan applications in the past few weeks, according to the latest statistics from bond originator, BetterLife Home Loans.
The number of applications received in March was 3.2% lower than the number received in March last year, and most of the decline occurred after the recall and firing of former finance minister Pravin Gordhan.
BetterLife Home Loans CEO Shaun Rademeyer says not only are applications lower but in the next six to 12 months, it is going to become increasingly difficult for applicants to obtain home loans.
“The banks are going to become increasingly cautious about extending any kind of credit as the ratings downgrade starts to bite, and will apply loan qualification criteria more strictly than they do now,” he says.
Rademeyer says that up to the point of the political changes this year, things were in fact looking encouraging in the property market with an increase in the percentage of first-time buyer applications since the start of the year.
“Things were definitely looking up. The rand had gained value against all the major currencies, inflation was coming under control as food prices stabilised and the Reserve Bank was even considering an interest rate decrease towards the end of the year,” he says.
“Now there is concern that this will all be reversed as the implications of South Africa’s ‘junk status’ investment rating become apparent.”
However, he says the South African property market has weathered worse conditions – “and fortunately many consumers are in a less exposed position financially than they were when recession hit in 2009, so we can expect a lower home loan default rate this time around”.
“We also expect home demand and sales to be buoyed by our growing population, and that will help to underpin house prices.
“Nevertheless, prices are bound to grow at a slower rate now, and that will in turn create more opportunities for prospective buyers and investors to get into the market.”
Rademeyer says a spike in buy- to- let purchases can be expected as investors who have been waiting for just the right moment, start to buy flats and townhouses to meet an anticipated increase in the demand for rental accommodation.
“Now would also be a great time for those who have spent the past few years paying off their debts, accumulating some savings and building up a good credit record to make their move and become homeowners – even if they buy a less expensive property to give themselves room to cope with possible interest rate increases in the future,” he says.