‘There is now more price realism in the residential market’

2013-02-06 00:00

THERE is no need for homeowners and estate agents to panic about the decline in house prices.

This is the view of household and consumer sector strategist at FNB, John Loos, who told The Witness yesterday that the residential property market was likely to stabilise, particularly in respect of price growth.

The latest January 2013 FNB House Price Index came in at -2,3% year on year in nominal terms, on the back of a 1,1% decline in December 2012. According to FNB, the average price of a house was R817 000.

While the beginning of 2012 saw a revival in nominal and real price growth, various events in South Africa — particularly labour unrest in the mining sector — saw growth taper off in the second half of the year.

Loos said the residential property market had suffered as a result of the macroeconomic events.

In addition, higher sales volumes in the affordable segment of the residential market had influenced the average price of property.

Loos said the index in January was also affected by a high base effect created by the strong growth experienced in January 2012. However, he expects the market to stabilise in 2013, on the back of mildly brighter economic prospects in SA and abroad. In addition, he said there is now more price realism in the residential market.

“Estate agents are saying to sellers, ‘you cannot put your home up for sale at R1 million — rather put it on the market for R800 000’. After the boom years, many sellers had a crazy idea of what their houses were worth.

“The strikes appear to be out the way, the global economy is expected to show growth … and we have the view that South Africa will grow at about 2,7% this year.”

Loos said that while properties in the major metros like Durban will perform adequately on the back of primary residential demand, areas with a higher proportion of holiday properties on the north and south coast of KZN would struggle.

“Municipal tariffs are going up regularly … and it is just not that attractive to own a second property.

“The most solid form of demand is primary residential demand. Buy to let would come second … and then finally holiday property demand, as this market is tied to leisure and to some extent tourism.”

He added that the rental market continues to perform well.

“The rental market will see a gradual improvement. We’ve seen rental payments improve … as the majority of tenants are in good standing. I expect that rental inflation will outperform house price inflation.”

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