Consumers should not make harsh decisions like selling their property, but rather revise their budgets and weather the storm.

“Look for cheaper options on things such as insurance products. Competing companies are likely to give you a better deal to acquire your business, especially in the current economic climate,” says Deon Lessing.

He quotes Finance Minister Trevor Manuel in saying that the inflation target band will remain unchanged at 3% to 6%. But this month the measure of inflation will change from the current CPIX inflation to headline CPI. This should bring about a lower inflation rate.

“Mortgage interest rates will be replaced with owner’s equivalent rent. Mortgage interest rate changes directly affect the measure of housing costs, which is why they were previously excluded from the target measure of inflation. The new measure will enable the cost of housing to be represented in the target measure,” says Deon Lessing.

“Inflation on necessities such as food and petrol are inescapable, which has repercussions on consumer spending. It’s simple: rising inflation erodes household spending. Even though food and petrol prices are now dropping, the weaker Rand has, to some extent, cancelled the effects on this.”

The current CPIX is based on expenditure patterns in 2000, whereas the headline CPI will be measured on the household income and expenditure survey of 2005/2006. Spending patterns have dramatically changed. Consumers have been hit with a cumulative 500 basis point interest rate hike since 2006, which lead to consumer spending declining. Soaring inflation rates reached a record high of 13,6% year-on-year (y/y) in August, and this, coupled with slowing income rates, has left consumers tightening their belts.

“Although we may be through the eye of the storm, we are still in for tough times ahead. It is important not to panic as fundamentally the South African market is still strong. We will not see growth in 2009 as we did between 2004 and 2007, but we are still far from recession.”

Manual advised that consumer inflation had been outside the target band for the last 15 months and inflation targeting will remain the anchor for the monetary policy.
Although navigating through this tough economic environment will be a challenge, the government will continue to expand and improve public services, investing in the infrastructure required for growth.

“Although the first half of next year may still be affected by past interest rate hikes, the new measure should bring the inflation rate back towards the target, which will bring about interest rate cuts. The sentiment is that interest is currently returning to the property market, but rate cuts will accelerate the market recovery period. South African consumers are better off than those in the US, who have a debt-to-income ratio of over 130% due to lax credit regulation. The introduction of the National Credit Act (NCA) has helped the South African consumer prepare for the current global crisis,” Lessing concludes.

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Buyers snap up distressed homes

Gauteng, the country’s most desired province has the most active distressed residential property market, according to RE/MAX of Southern Africa.

The agency says of the 600 distressed properties listed to date this year, 70 percent are in Gauteng, 20 percent in KwaZulu-Natal and 10 percent in the Western Cape.

Distressed properties are expected to continue flooding the South African residential market for the next five years at least, says Peter Gilmour.

He explains that a lot of this is caused by interest rate hike on the horizon as well as the consumer’s debt-to-disposable-income ratios and the homeowner’s ability to meet their monthly bond repayments.

“Of the distressed properties listed in Gauteng, close on 40 percent have been successfully sold.”

He explains that these distressed properties spent an average of 48 days on the market and are priced between R250 000 and R2 million.

In Pretoria, two distressed properties sold this year spent a month on the market.

Grobler says distressed properties in this area range between R500 000 and R1.5 million and not all of them are in the bank’s distressed program.

“There are many homeowners who are desperate to sell their properties due to financial constraints, but are not yet on the official bank’s distressed program.”

These properties offer buyers a good investment as property remains a valuable asset class to invest into.

“They are qamna prices and we do not see distressed properties as offering anything other for a buyer in comparison with a non-distressed property,” she says.

In some parts of Gauteng, distressed properties that have been sold were sold for less than market value.

Jannie Storm,  operating in the Vaal Triangle including Vanderbijlpark, Sasolburg and Vereeniging says they have sold 11 distressed properties for less than the market value.

For the most part, says RE/MAX, distressed properties sell very close to their actual market value.

Currently, Storm has 28 distressed properties in Sasolburg and Vanderbijlpark priced between R300 000 and R600 000. They take between 30 and 70 days to sell on average.

In some parts of Gauteng, distressed property sales have created an immense demand for property in areas such as Clayville and Tembisa on the Midrand periphery.

This is largely thanks to the banks’ more lenient approach towards buyers of these distressed homes, says Julie Davison-White, principal of the Aida Midrand office.

“Banks have been granting bonds of up to 100 percent to buyers with good credit records when they buy property in these areas as well as some parts of Midrand,” says Davison-White.

However, she says this is not the norm as many buyers still have to put down deposits of at least 5 or 10 percent. Many buyers in Clayville and Tembisa have been purchasing property through the assisted sales programs offered by the banks to financially distressed homeowners.

Davison-White says through these programs, buyers are often able to access 100 percent bonds and 50 percent reduction in transfer costs enabling them to get a foothold in the market much more easily.

For distressed homeowners, she says the program assists them to sell their properties at reasonable prices instead of having them repossessed and then have their credit records tarnished as a result of repossession.

Distressed properties in this area sell quite quickly at prices ranging from R350 000 to R550 000 for free standing homes in Tembisa and from R550 000 to R700 000 for freehold homes in Clayville.

Demand has increased for lower-priced properties in popular areas such as Vorna Valley with price averages of R550 000, in Halfway Gardens, townhouses are priced at between R650 000 and R900 000 and Noordwyk, houses are priced below R1million and these are said to be selling like hotcakes.

As for freehold homes in higher price brackets, Halfway Gardens is currently one of the most popular areas for buyers targeting suburban homes priced between R1.1million  and R2.2 million  and clusters costing between R1.4 million and R2.5 million she says. – Denise Mhlanga

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