Property values continue to decline : ABSA  

The year-on-year growth in the value of middle-segment homes slowed down further in November, Absa said on Tuesday.

“The year-on-year growth in the value of homes for which Absa approved mortgage finance slowed down further in both nominal and real terms in November 2010,” said Jacques du Toit, sectoral analyst at Absa Retail Bank, in a statement.

In all three categories of housing — small, medium and large — price growth was lower in both nominal — where the effects of inflation are not taken into account, and real terms — which factors in the effects of inflation, in November compared to last year.

“On a monthly basis, home values continued to decline after reaching a peak around April this year, but the pace of monthly contractions appears to be slowing down.”  

The downward trend could be influenced by the slowing economic growth since the second quarter and the loss of 275,000 jobs in the first three quarters of the year, said Du Toit.

Fewer interest rates cuts this year compared to 2009, the lack of improvement in consumer confidence and the high levels of debt in relation to disposable income, also played a role.

The small house segment — from 80 to 141 square metres — saw average nominal price growth of 0.8 percent year-on-year in November 2010. In October it was 5.9 percent.

“This brought the average value of a small house to around R688,100 in November,” said Du Toit.

The average nominal value of medium-sized houses (141 to 220 square metres) increased by 1.8 percent year-on-year in November, compared to three percent in October.

The average house price in this category was around R951,100 in November 

In the large house category — between 221 to 400 square metres — the average nominal price level was marginally down by 0.1 percent year-on-year in November after increasing by 0.3 percent year-on-year in October.

 The average price of a large house was around R1,407,300 in nominal terms in November. 

Du Toit expected nominal price growth to average about seven percent for the year.Real price growth, based on consumer price inflation, was forecast at around 2.5 percent. 

Du Toit said given expected economic developments, nominal house price growth would be just below five percent for 2011.

“Based on forecasts for nominal price trends and consumer price inflation, prices are set to remain almost stable in real terms in 2011 compared with this year.”Absa’s observations tally with those of the November FNB House Price Index released last week, which found that average house price growth slowed in November to a year-on-year rate of increase of 3.8 percent

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With financial experts still concerned about the threat of a global double dip recession landlords should be extra vigilant about keeping a handle on bad debt.

Collecting incoming payments should always be at the top of any landlord’s agenda, but with the risk of there still being a fall-out from last year’s economic downturn, landlords need to be even more proactive about debt collection.

Landlords and their property managers need to get their hands dirty. First and foremost is accurate and timely reporting that will flag problems early on, giving landlords a chance to take action before the debt starts to gather.

Once landlords or property managers have spotted a problem, it’s vital that they act quickly. This generally involves a few tough decisions on whether or not it makes sense to keep the tenant or not.

If the tenant is an attractive one, that complements the property’s tenant mix, and runs a generally sound and sustainable business it is most likely worth nursing them through the tough times to benefit from a longer term gain.

Put a manageable payment plan in place, or be creative about extracting value from the tenant. For instance, retail tenants might be behind in their rent, but will still be marketing their business. Landlords should strike a deal to ensure that their property features prominently in the tenant’s marketing campaign. Another good option is to agree that the tenant arranges a promotional event in the shopping centre to help attract new shoppers.

On the other hand, if the tenant is not a particularly desirable one and/or appears to be suffering from deep-rooted and systemic financial woes, it may be better to cut for a landlord to cut their losses before they escalate – within the confines of the lease agreement with that tenant, of course.

Other tips include:

- Maintain good communication on both sides of the food chain. If your tenants are struggling to pay their rent, you might find yourself in a position where you can’t pay suppliers or your bank. Know who is likely to default so you don’t get caught by surprise, and keep your debtors informed of your position so that they remain favourable to you.

- Do take judgement against defaulters, even if they have absconded and it seems highly unlikely you will receive any money in the short term. You may at least recoup your losses in the long-term when the tenant wants to clear their black-listing.

A double dip recession refers to second recession that kicks in after short period of economic growth following an initial recession. At the Fortune-Time-CNN Global Forum held in Cape Town at the end of June, both Trade and Industry Minister Rob Davies and Absa CEO Maria Ramos warned about the risk of debt-laden developed economies slumping again.

CONTACT US

Speak to a home loan consultant about financing your new property or reviewing your existing mortgage. We are able to assist in lowering your bond repayments and securing attorney discounts.

Complete this short form online
Call us on 011.327.4489
Email: morne@mortgagepluscc.co.za

www.mortgagepluscc.co.za