SA house prices will recover before US - Re/Max
January 8, 2009
By Tom Robbins
Cape Town - South African housing prices could fall further over the next six months, but are likely to recover before those in the US, according to Peter Gilmour, a senior executive at US-based Re/Max International.
Gilmour expected local prices to stabilise in the second half, but said a "steady" improvement would take place only next year as banks became inclined to lend again.
Gilmour, Re/Max's senior vice-president of international sales and brokerage, includes southern Africa in his portfolio. Denver, Colorado-based Gilmour, who ranks third in the franchisor estate agency's international hierarchy, and his wife, Val, brought Re/Max to this country.
He said the fact that local banks were now asking for deposits of at least 20 percent in the falling market was the biggest negative.
He expected a steady decline in interest rates to help the recovery, although he cautioned that job losses could temper the uptick next year.
In the US the credit crunch, coupled with little demand from buyers, led him to predict that property values could continue falling for another 18 months, as the rest of the economy followed property into decline. At present, more than half of sales in the country were bank repossessions.
Both values and transactions have fallen by higher percentages in the US than here, as a model of easy credit to risky borrowers came horribly unstuck when the bubble burst.
Gilmour said that of the developed country markets, Canada, with its more prudent lending regulation, had been among the most insulated from the global fall in prices.
Re/Max, which did R20 billion in sales in South Africa in 2007, planned to open 40 new offices in the country this year, hoping to take market share from independent estate agencies, which, it said, struggled more in a downturn than the bigger players.
The franchisor, which has a presence in 66 countries, says it has more agencies than any other group. Residential sales make up most of its business, but it also sells commercial property, conducts property auctions and provides advisory and relocation services.
Earlier this week, First National Bank (FNB) Home Loans said the South African housing market had continued to weaken last month.
"The FNB house price index continued its worsening year-on-year percentage change trend in December, to record its second month of average price deflation by this measure to the tune of minus 1.7 percent," said the bank.
This was "significantly" worse than the 0.4 percent decline in November.
But for the whole of last year, the average price eked out a 5.2 percent rise to R748 428. Annual increases have been falling steadily since the bumper year of 2004, when prices rose 29.5 percent.
According to the bank's property strategist, John Loos, the December year-on-year fall was 10.6 percent after taking inflation into account.
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