Residential Property Growth Forecast for 2015
Category Property market overview
South Africa had its share of ups and downs in 2014 with mining strikes, interest rate hikes and rolling blackouts during the latter part of the year. That being said it wasn’t a bad year for the residential property market as indicated by the latest FNB House Price Index: “With December’s House Price Index now compiled, the complete picture for 2014 becomes available. Average house price inflation for 2014 was slightly stronger than 2013, at 7.1%, compared to 2013’s 6.8%.
This implies a 3rd consecutive year of real house price growth, i.e. House Price inflation exceeding Consumer Price Inflation, as the demand-supply balance has gradually strengthened over most of this 3 year period”.
“We’ve increasingly found that our agents’ biggest struggle is getting enough stock to sell – especially in the metropolitan areas”, says Bruce Swain, MD of Leapfrog Property Group, “FNB is predicting a ‘further mild increase in the average house price growth for 2015’ and we’re foreseeing the same movement based on lower oil and food prices and other contributing factors”.
Interest rates to go up?
The South African Reserve Bank’s Monetary Policy Committee slowly began raising the interest rate in 2014 and it seems certain that they’ll continue to do so in 2015. John Loos, FNB Household and Property Sector Strategist believes that the MPC will gradually raise the repo rate to 6.5% (implying a Prime Rate ending of 10% by then end of next year) in an attempt to ‘normalize’ the interest rates.
However the current decline in global oil prices and a fairly stable Rand has created a drop in imported goods inflation – pushing Consumer Price Inflation back below the SARB’s 6% Upper Target Limit, a move that Loos believes will reduce pressure on the Reserve Bank to increase interest rates so hikes may not be coming as quickly as originally expected.
Middle income housing a seller’s market
The average house price during December 2014 was R985,405 up from R978,122 in October of the same year. “Our agents, and I believe most agents around the country are reporting the greatest amount of activity in the middle income housing bracket at the moment”, says Swain. Based on the continued strong demand in metro areas, particularly for properties below R2 million, Swain predicts that stock shortages (i.e a seller’s market) will continue through 2015 until the building sector eventually catches up.
Sectional title’s the name of the game
Swain predicts that the residential property market will see much more development in terms of sectional title housing within the R350,000 to R1 million price range, a forecast that’s borne up by the 10 Year FNB Property Barometer Report; “FNB’s valuations data already indicates that, over the past decade or so, of the properties built in this period over 15% were Sectional Title units. This doesn’t sound like a high percentage yet, but it well-exceeds the percentage in the few decades that came before. In addition, of Full Title Units valued that were built from 2010 to 2013, the average stand size was 498 square metres. This represents a big decline from a high of 1068 square metres average for the Full Title properties built from 1970 to 1974”.
Banks more willing to lend
“Over the past few years the banks have definitely eased up on their lending criteria, and to their credit”, believes Swain. Both employed and self-employed applicants can now obtain far better mortgages than in 2009 for example ,but Swain stresses that it’s still vital to get pre-approval and, ideally to work with a home loan originator when making an offer to purchase a property as this cuts through a lot of red tape.
The foreign buyer contribution
While the weaker Rand has lured many foreign buyers over the last few years Bruce Swain reiterates the fact that this group of buyers remain the minority; “at the end of the day foreign buyers of residential property in SA comprises of a very small group – most of the action still takes place between local buyers and sellers and we don’t see that changing in a significant way”.
All in all the forecast for the residential property market in 2015 might not be brilliant but it’s far from bad. Sellers stand to do well – as long as their asking prices are realistic – and buyers can get good home loans, albeit only if they’ve done their homework and their finances are in order. “It’s going to be business as usual and we’re looking forward to a good year”, predicts Swain.
Author: Leapfrog Property Group
