Residential house price growth downgraded

Residential house price growth downgraded
Ray Mahlaka
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Existing homeowners who were expecting a sizeable increase in the value of their properties are likely to be disappointed.
It seems like estimates for house price growth are being revised down from the near double-digit figure punted earlier this year.
Industry players anticipated residential property prices to accelerate by 8% to 9%, but most have downgraded their forecasts to an average of 6% for 2015.
Absa Home Loans property analyst Jacques du Toit attests to this, saying the domestic economy continues to drag down the residential property market.
SA’s tepid economic growth rate which is expected to be less than 2%, the normalisation of interest rates, which saw the central bank lift the repo rate by 25 basis points in July, the weaker rand, overall confidence in the domestic economy (teetering on a 14-year low), are the usual economic concerns.
“These broader trends are reflecting in the property market. If we don’t see an improvement in the macroeconomic environment we won’t see a boom in the residential property market,” says Du Toit.
Even the 6% anticipated house price growth comes with a caution. If the country’s economic and consumer fortunes don’t look up, then the growth prospects might be downgraded further.
The zealous house price growth estimates were also driven mainly by the decline of international oil prices, which was expected to have a positive spin-off for the domestic market, says FNB’s household and property sector strategist John Loos. 
“There should have been a sizeable stimulus, but other metal and mineral prices kept on declining and also export growth. It does not look like we got near-term benefit and that spurs the slowdown in house price growth,” Loos says.
The fact that residential property sector started off on a decent note, with January’s house price growth edging to 6.3% on the back of 2014’s 7.1% figure,  also prompted bullish sentiments.
Loos expects house prices to clock up 5% for this year, and a single-digit rate might be the norm for the next few years.
Real house price growth and sales volumes
But property prices are not growing in real terms (when house prices are adjusted for consumer price inflation). With the real house price growth expected to be 4.7%, it means that property prices are not growing at the rate of inflation (5% for July).
Although property prices are not accelerating at the rate seen during the boom years of 2004 and 2005, when year-on-year house price growth was 36% – it no doubt surpasses the deflation of -15.4% seen in 2009.  
Says Loos: “House price levels, to a large extent, are high by historic standards and they have not nearly corrected to reflect an economy that grows at less than 2%.”
Others, like Ronald Ennik, CEO of real estate agency Ennik Estates, anticipated conservative estimates of house prices. “There are no surprises that house price growth would slip back to inflation. The market has turned and it has turned quickly. Property cannot be insulated from the economy,” Ennik suggests.
Beyond the economic fundamentals, the residential market is also facing property specific headwinds, largely the insatiable demand for property but not enough supply in the major metros of Johannesburg, Cape Town and Durban. Because of this, demand for property by prospective buyers is starting to cool down, says Herschel Jawitz, CEO Jawitz Properties. “The issue is that the property market cannot sustain itself with stock shortages growing,” he says.
Further pressure on the residential market is evident in the drop in sales volumes. Jawitz says general sales volumes have declined up to 15% year-on-year, but large metropolitan areas have seen a decline of 4% to 7%.
Property price segments
Various property price segments are seeing different performances. Latest figures from Absa peg the luxury market, with properties valued between R4.2 million and R15.5 million, as being the best performer, recording growth of 10.8% year-on-year for the second quarter of 2015. (See house price growth for other price segments below.)
House price growth for property price segments 

Price segment    Property value    Nominal house price growth (y/y)    Real house price growth (y/y)

Luxury housing
    
R4.2 million to R15.5 million
    10.8%    5.9%
Affordable housing    Priced up to R575 000    8.6%    3.9%

Middle-segment housing    Priced at R4.2 million or less    6.7%    2%

Source: Absa Home Loans

Ennik, who is involved in luxury real estate, says the bad news, be it political or economic, might discourage buyer interest and subsequently chill the market’s performance. “Captains of industry are close to bad news and they have a wait and see approach. Most are concerned about the bigger picture – do they buy property when the property market is under pressure?”