When taking inflation into account house prices in SA will likely keep falling for the next five years, according to property economist Erwin Rode.
"I don't expect in real terms house prices will grow in the next five years or so, because of the current circumstances in SA. The only thing in dispute is by how much house prices will be going down in real terms," he said during a residential property webinar hosted by Rode & Associates and Real Estate Investor on Tuesday.
He added that, in real terms, South African house prices are still very high, leaving room for prices to decline further. When looking at the movement of house prices since 2015, he found that real price growth tended to be weaker in the wealthier segments of the market
At the same time, while a sharp decline in interest rates has made owning a property more attractive, Rode warns that it is still not clear how long low rates will last.
Vacancy rates of flats are currently about 11% nationally, and Rode said "even owning a flat now and renting it out has a changed risk profile. We are in new territory in SA".
Flat rentals above R25 000 seem to have the worst vacancy rate, at 23%, while the vacancy rate of cheap rentals of below R3 000 per month is about 17%. In his view, an oversupply of flats will likely remain for the next few years. From a developer's point of view, the greatest risk is not so much the prices units can be sold for, but the tempo at which it is possible under current conditions to sell them.
"House prices surprised on the upside recently, but will no doubt come under pressure. SA is entering a period of stagnation if not decline and it will be terrible for employment and salary levels. This is not just because of the impact of the Covid-19 pandemic. SA was in a recession even before Covid-19 struck and those reasons will not disappear overnight," said Rode.
"From the banks' point of view, financing will become riskier. I expect banks will fine tune their lending criteria. Until recently banks were prepared to grant 100% mortgages, which made me worried of what the eventual outcome of this policy would be."