The residential property market is expected to gradually
improve in 2010, Absa said on Monday.

This was due to better economic conditions, the lagged effect of lower interest rates and less tight credit conditions, Absa analyst Jacques du Toit said in a statement.

According to Absa’s latest house price indices, residential property prices declined marginally in nominal terms in 2009 compared with 2008.

“Prices declined in the first half of 2009, but started to rise on a month-on-month basis since May.”

Taking account of the effect of inflation, Du Toit said house prices continued to decline in real terms up to November last year, although at a much slower pace than earlier in the year.

“This was the net result of rising prices in nominal terms in the second half of the year, while inflation tapered off to lower levels during this period.”

Residential property transaction volumes increased further in the final quarter of 2009 after bottoming in the second quarter of the year.

The higher level of activity, as well as rising nominal prices towards the end of last year, came on the back of declining interest rates and the selective relaxation of lending criteria by banks, Du Toit said.

Middle-segment house prices were marginally down by a nominal 0.2 percent in 2009 (+4.1 percent in 2008), after increasing by 5.6 percent year-on-year to R1 010 700 in December.

In real terms, middle-segment house prices were down by 1.1 percent year-on-year in November and down 7.4 percent year-on-year in the first 11 months of the year.

Du Toit said South Africa appeared to be out of recession after real annualised gross domestic product (GDP) growth of 0.9 percent was recorded in the third quarter of 2009, with growth estimated to have been around 1.5 percent in the fourth quarter.

“The economy is expected to improve further during the course of 2010 and record real GDP growth of about 2.5 percent this year.”

“With inflation forecast to be under upward pressure in the near term, interest rates are expected to remain unchanged for most of the year before being hiked late this year in an attempt to keep inflation under control.”

Du Toit said the household sector was still experiencing some financial strain.

The ratio of household debt to disposable income remained relatively high at almost 80 percent, while real disposable income dropped further in the third quarter of last year in the wake of major job losses during the course of the year.

Real disposable income growth was expected to turn positive again towards mid-year while the debt ratio was forecast to remain relatively stable at just below 79 percent.

While the residential property market was expected to improve this year, the positive effect of the lower interest rates was set to diminish towards the end of 2010, Du Toit said.

House prices were forecast to rise by between six and seven percent in nominal terms in 2010, while in real terms, a marginal increase might be possible on the back of current projections for nominal house price growth and consumer price inflation. – Sapa

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So what is the verdict on 2009 from a residential property perspective?

Was it as calamitous as 2008 and what’s in store for 2010?

“2009, although possibly the worst year in the South African property sector since the 1939/1945 recession, was not the total disaster that many doom and gloom pessimists had predicted it would be in the first two months of the year,” says Lanice Steward, MD of Anne Knight Porter Frank (APKF).

Drawing heavily on the recently updated FNB Global Economic and South African Property Reviews, Steward said that several sets of figures support her contention that the South African residential sector is now coming out of its recession and is set for a better year in 2010.

“First, we have to look at the IMF forecasts for the world economy in 2010. IMF anticipate a China-led revival giving a 5,1% growth in GDP overall, with even the USA at last in positive territory with a 1,5% growth, while the G4 growth will be at 2% plus.

“Second, in South Africa the year-on-year (y/y) decline in commodity values (on which we are heavily reliant) has now bottomed out and prices are on the up once again. A similar trend appears to be evident in many of our exports.

“Third, South Africa’s Leading Business Cycle Indicators, boosted by the lower interest rates and the recovery of the global economy, have been rising since March this year.

“Fourth, taking these and other factors into account and the recent unexpected rise in GDP after nine months of decline, economists are now looking forward to a 2% GDP growth in 2010. This is by no means spectacular, but if I understand the experts right, it could usher in higher growth in 2011.

“In the housing sector, as we have all witnessed, the second and third quarters saw a continued slow-down in the mortgage rates issued and a return, in a few instances, to 100% bonds being occasionally made available. In the R300k to R3 million market, it is particularly interesting to see that easing credit criteria saw the loan-to-values ratio improve for the first time since mid-2008 and, although at 89% it still has room for upward movement, the predictions are that this will take place.

“Overall mortgage loans grew in value y/y by 4,5% and by some 12% in number, and these figures are continuing to rise.

Further evidence that the residential recovery is now a reality, said Steward, is given by the FNB Activity Graph that shows a 45% increase this year in comparison with a 50% decline figure in early 2009. “Significantly, South African real estate agents have reported that the average time that a home is on the market has now dropped from a high of 21 to 16 weeks and the downscaling due to financial pressure has slowed (by 6%), while buying to upgrade has now risen by 5%.”

These figures, she said, will continue to improve in the months ahead. The FNB/Absa reports, added Steward, also indicate that since the second quarter some 25% more potential buyers see themselves being able to afford a home. “It is particularly encouraging to note that the Affordability Index is now well above the low of the late 1990s and early 2000s.” Jacques du Toit, property economist at Absa says 2009 was still overall a worse year than 2008 from a residential point of view. “The market has suffered a lot during the course of the year, especially in the first half with nominal price growth in negative territory. However, the past three months saw same positive price growth, most probably driven by the lagged effect of lower interest rates and banks’ selective relaxation of lending criteria.” He says that in 2008 price growth moved lower, but was still positive at 4%, while prices dropped in the first half of 2009, only to pick up over the past two to three months. “This year is likely to see prices declining by about 0,5% for the full year compared with 4% growth in 2008 (all in nominal terms).” He says 2010 will see gradual improvement from current levels, with nominal price growth of at least 5% and demand also picking up further. Dr Andrew Golding, CE of Pam Golding Property (PGP), also takes a less than sanguine view of 2009, but is full of optimism for the year ahead. “Characterised by at least a 50% fall-off in the volume of sales, an extreme scarcity of bank lending finance and, as a generalisation, a marginal fall-off in pricing, the past year has seen extremely tough trading conditions for the property industry,” he says. “We are looking forward to 2010 with great enthusiasm and optimism, having come through two tough trading years. The market seems to have reached its trough and if the last four months of this calendar year are anything to go by, then we should be in for a steadily improving market through 2010.” Steward says that in the Southern Suburbs of Cape Town the average selling price in 2009 was only 13% below that of 2007. “In Sandton, by contrast, it was well over 25% at one stage. Furthermore, our recovery is now taking place steadily, as we predicted it would, while in other areas of the country the market still appears to be fairly volatile.”

She says the stability of Cape property is at least partly due to the higher values in that region. “The FNB figures show clearly that the higher priced properties on the whole fared better in the downturn than those of lower priced properties, partly because in many instances the owners were not in a hurry to sell.”

Golding agrees wholeheartedly and says while trade in this particular segment has been thin, it has continued to surprise with its ability to push the top end of the residential property market in South Africa to new levels. “There have been well recorded record sales in SA’s top suburbs. There is no doubt that this segment of the market has now become measurable in terms of global comparisons and therefore it is not inconceivable that these prices will continue to rise as discerning buyers find value in SA’s very top properties.” – Eugene Brink

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