Residential market has hit bottom - experts
August 26, 2009
Property experts seem to be convinced that SA's residential market has bottomed and in some areas a marginal increase in demand is being experienced.
Early this month, the Reserve Bank took markets and analysts by surprise, cutting lending rates despite stubborn price pressures in a bid to help jolt the economy out of recession. The Bank's monetary policy committee cut its key repo rate half a percentage point to 7% - its lowest in more than three years.
Although the drop in interest rates is welcome, the economy is still reeling from a recession. Consumer spending, the main engine of SA's economy, has now retreated for three quarters in a row, diving 4,9% in the first quarter - a 13-year record. The disposable income of households has also waned for three successive quarters despite lower interest rates, eroded by high debt levels, inflation and rising electricity costs.
ClareMart Auction Group CEO Jonathan Smiedt says the latest interest rate drop is expected to further bolster confidence in the property market.
"We have seen a steady increase in attendances at our show days over the last month, with a marked increase since the Reserve Bank announcement. People are realising that buying a home is again within their reach, and with sellers accepting more realistic prices this is translating into confirmed sales," he says.
Over the past eight months, interest rates have dropped steadily by five percentage points, which makes the current prime rate of 10,5% one of the lowest seen in 20 years (the only other time this low level was experienced was from April 2005 to June 2006). The result is that home loan repayments have fallen more than 25% since December and affordability has increased substantially.
Smiedt says the increase in affordability will soften the impact of the recession on many households and lower the number of distressed and forced sales over the next 12 months.
"Furthermore, those who have worked wisely with their money and have not overextended themselves will now be able to upgrade by purchasing property at a higher level, but at lower prices than 18 months ago," he says.
Still, one of the biggest obstacles in the road to recovery is that financial institutions and banks maintain stringent lending policies.
With low property prices and many sellers desperate to sell, banks still refuse to provide bond finance to buyers, even though property prices represent excellent value.
"It is not that we don't have buyers in the market, it is rather access to finance to participate in this buyer's market that has been reduced. This excludes many serious buyers from participating in the current market," Smiedt says.
Despite the recession, reports indicate that the local property auction industry is seeing good returns. Smiedt ascribes this success to the fact that the auction mechanism creates clean offers without suspensive conditions.
The increase in activity and confirmed sales reported by the ClareMart Auction Group are in all segments of the residential market, says Smiedt. A recent sale of a beachfront property in St James, Cape Town, for just over R16m confirms that high-end properties are still achieving top prices. Further sales figures confirm that activity in the R300000-to-R2m range has also increased. Smiedt's group reports a 30% month-on-month increase in residential property sales since May.
"Buyers are approaching the declining market with the attitude of this being the last opportunity to take advantage of lower prices before the market recovers. I believe we will see a slow but sure increase in activity towards the end of the year," Smiedt says. With conservative estimates of a price stabilisation in the residential sector only next year, astute investors are buying property now.
Rawson Properties chairman Bill Rawson says in his view this recession is not as bad as those of 1969 and 1991 and the 1976-1977 Soweto riots period.
Rawson MD Tony Clarke says although he does not foresee a real recovery for 12 months, some of his group's latest sales figures have been very encouraging.
Clarke says the banks are slowly easing up on their lending criteria and many indecisive, hesitant buyers who were hanging back and waiting for signs that the market was at its lowest point are now investing.
"In general," he says, "they are taking twice as long as before to make up their minds and are much more demanding of value than previously, but they are no longer just waiting."
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