Tuesday, 18 March 2008

Gloomy Times Ahead - Or Light at the end of the Property Tunnel

I'm not one for copying content and placing it on my site, but after reading this article from FNB's home loan and property expert John Loos I think it should be shared with everyone. Is the South African property market taking a turn for the worse? Read on and see what the pro's have to say...

Copied from FNB's property market newsletter.

Although in these relatively gloomy times it is sometimes difficult to see “light at the end of the tunnel”, it is always important to remember that property runs in cycles and at some point the cycle turns.

About three-and-a-half years after the broad downturn started, I remain of the belief that we are in “the end times” with regard to the weakening trend, and that improvement is now near.

This belief is based largely on the Firstrand view that interest rates have probably reached their peak. Although CPIX inflation still runs well-above the target limit of 6%, it is more the significant weakening in some key domestic demand indicators, most notably in the area of household spending growth, which leads to our belief that the SARB may well believe that it has
done enough to cool home grown inflationary pressures.

However, some other key property fundamentals (ones which I regard as crucial to a residential market recovery) are starting to show signs of improvement.

The first one is the rental market, with letting agents interviewed in FNB’s Rental Property Barometer survey overwhelmingly pointing to strengthening in their markets and growing shortages of available letting stock. This strengthening is important in order to improve the attractiveness of residential property as an investment.

The second one is the indication of significant slowing in new residential building completions, driven lower for the most part by weak demand last year, but to be helped lower by Eskom’s capacity shortages too. This is not great from a developer point of view, but for property returns to improve it is important thatwe have a slowdown in growth of stock, and 2008 looks set to be a dismal year from a development point of view. The combination of the expected trend change in interest rate from hiking to flat, an improving rental market and a slowing development market bodes well for property returns.

I expect to see primary residential demand responding more positively towards mid-year, translating into a return to positive growth in the value of new mortgage advances, while house price inflation will probably only respond with a little more of a time lag towards the end of the year. The development cycle is only expected to pick up late in the year in terms of work in progress, which in turn would only translate into improved building completions numbers only in 2009.

The risks? Any further interest rate hikes could delay the expected recovery, while current emigration talk is a cause for concern.


Anonymous said...

Hey there is not only light at the end of the tunnel but property as well.

Fair prices until the start of the fourth quater and hopefull rate hikes stay put and possibly even drop off a little.

Only concern for the concumer now is ESKOM and there 56% increase in electricity.



Anonymous said...

yeah it's unfortunate that... eskom is really hurting SA at the moment. they're not making anyones lives easier that's for sure

Estate Agents Finder said...

Thanks for this sharing this. The best thing to do is to think of the best and effective strategy. Eventually they will overcome this one

doublef said...

If you take The FIFA 2010 World Cup and ESKOM into consideration then you will probably find that property prices are going to go one way, up. Don't forget that because of ESKOM there will not be any real new developments for the next 5 years. When supply is low and demand is high prices go up.

I say, if you can get your hands on property, this is the year to do it.

Sudipta Das said...

Hello, I'm trying to sell my house in Michigan. We have had it up for sales for 2 months, and had only one showing. We can't lower our asking price any lower then it currently is without having to come to closing with money. Since our realtor already lowered his commission he suggested talking to our mortgage company about a short sale. What is your opinion? Thanks a lot.

Sudipta das
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