“The residential market is no different and given the current economy, it would be difficult to expect anything else. Price growth, even if in nominal terms only, is managing to hold its own given current economic volatility,” says Herschel Jawitz.
Current price growth is appropriate to the economy especially when issues such as disposable income, affordability and bank lending are taken into account. If property prices were to grow beyond current inflation, it may well reduce demand below the current levels based on affordability. Real price growth taking into account inflation is always first prize, but in the current economy it is likely to impact on affordability and inhibit demand.
“Banks continue to report soft demand in the market, but these are general statements and do not necessarily reflect the market as a whole,” he says. “Coastal leisure markets are under pressure and will remain so for some time as supply significantly exceeds demand. It is not the same however in the metro areas, particularly in the price bracket up to around R3.5 million where demand, while not strong, is better than the banks’ research suggests. There is activity.”
“Interestingly, lending on cars, personal loans and credit cards is increasing at a much faster rate than mortgage financing. Ironically, it would appear to be easier to get an unsecured loan than a mortgage loan secured by bricks and mortar.
Despite the fact that property prices and demand are sluggish, there will always be those, who for financial or emotional reasons want to buy and can afford to buy. In previous markets, the buy-to-break-even time-frame was about three years as opposed to the current five years. Provided that buyers take a long term view, residential property will show real growth.
The whole issue of buying versus renting goes beyond a simple yield calculation. Home ownership forms the backbone of communities and families on both aspirational and social levels. Yields, however, do not take this into account. “Even if property prices increase by only two to three percent per year over the next few years, the owner would have built up some equity - it may be small, but it’s a start,” he says.
This is supported by the fact that first time buyers increased considerably in 2011, versus 2010 and 2009 despite consumer indebtedness and the economy. According to FNB research, first time buyers made up 23% of buyers in 2011. This is important. First time buyers will ultimately support the overall recovery of the market from a demand and then price point of view. The recovery has to be ‘bottom up’ for it to be sustainable.
Jawitz cautions buyers must do their homework and make sure they buy at prices that reflect the market today. Whilst there are no real bargains, this is definitely not the market to overpay for a home. For sellers, it’s about understanding the market and pricing the property accordingly. Homes are not taking four months to sell, sellers are taking that long to finally realise what the market is prepared to pay for their home. Every seller’s home is their castle but unfortunately the emotional value that owner’s place on their homes does not always equate to financial value.
“Patience will be a key factor in terms of a recovery in the economy and similarly in the residential market. Property prices will inevitably start to move, but it’s a matter of when. In the meantime, with property prices at current levels and interest rates at historically low levels, the decision to buy now, with a long term view, is sound,” he says.
Paula Neild is the Marketing Manager for Jawitz Properties South Africa. Contact paula@jawitz.co.za or call 011-880-3550. Jawitz Properties specialise in South African property for sale and property rentals throughout South Africa. Visit http://www.jawitz.co.za for more information.
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