PROPERTY MARKET RECOVERING ?
PUBLISHED 17 JUL 2012
There has been much speculation as to whether the South Afican property market is picking up. Sellers who have been holding onto their properties in the hope that there will be an upswing and buyers, still eager to get a good deal, all watch the market for any indications of change. But how would one know? Can the recent Residential Building Statistics released by ABSA Bank, for example lead to an accurate prediction? In a sense yes but, in reality there are several factors which need to be taken into consideration before any profession of improvement. One needs to look at the public's debt-to-income ratios, bank's willingness to approve home loans, building plan approvals, construction, foreign investment and, what estate agents are seeing on the ground.
Estate agents are paid to know what's going on in their respective areas regarding property prices. As such, they are some of the first people to see trends in the market. Joanie la Grange, Principal of the Leapfrog Pretoria East and Centurion franchises, believes that prices in their area are quite stable. She also notes that sellers generally do make provision for lower purchase price, but if the property is correctly priced from the beginning, or if the condition of the property is very good, sellers get their asking prices'. Andrew Stephenson, Principal of Leapfrog Milnerton, agrees that sellers are becoming more realistic in terms of pricing their properties - a factor that is certainly raising the number of property sales. He also has seen an increased interest from buyers and shares that sales in January and February 2012 are significantly higher that the same period in 2011.
Observation from agents points to stability in the market with prime properties still doing well. There is stock. The question is - are more people buying? A better question might be, are they getting home loans? Statistics from home loan originator, BetterBond, indicate that the market is on the up and picking up momentum. Grants for the past three months have increased by approximately 20% year-on-year. Approval ratios by the banks are currently around 50% and also increasing. As such, the calls from banks to ease up on home loan applications are set to continue as indicated by La Grange: "There is no shortage of buyers in the good investment areas throughout Pretoria. The challenge is to get buyers that can qualify in terms of the bank's lending criteria. It seems that the banks are becoming slightly more lenient in their criteria." Rudi Both CEO of BetterBond agrees, stating that the residential property market will continue to be driven in 2012 by the banks and whatever their appetite is for lending. This appetite is also influenced by factors like the interest rate - which most experts expect to remain stable - and home loan applicants' deposits as well as their debt-to-income ratios. At present the ration stands at 75% for the majority of South Africans, a fact that does not encourage lending. Home loans of 100% have reduced significantly to approximately 20% of all applications approved from a high of around 45%
Martin Chemaly, Principal of Leapfrog New South in Johannesburg, believes that part of the franchise's success is that its agents are coaching buyers in terms of the process for a successful home loan application. "People generally seems more confident and educated when it comes to buying a property and are coming in with their deposits and costs prepared,"says Chemaly.
Bruce Swain, MD of Leapfrog Property Group believes, Äbsa seems to have a renewed appetite for home loan finance and have, for example, re-engaged with bond originators. This is bound to increase competition to, especially, Standard Bank, which has dominated the new home loan market lately. Estate agents have willing and able buyers. If banks grant, for example, 10% more home loans, agents will sell 10% more homes!. Our market is much better than perceived; the dampener was to a large extent the availability of finance, and things are improving in this sphere." To a degree, the proposed roll-out of the National Housing Fund in April this year, as well as the proposed housing subsidies will do much to boost the lower end of the housing market. "Whilst we are pleased that more people can now potentially enter the property market, what the industry needs is more approved home loans across the entire spectrum - something we hope bank s will become increasingly open to," says Swain.
Activity in residential development remains one of the prime indicators of health in the property market. According to the 2011 Residential Building Statistics as released by Absa Bank, the number of residential building plans that have been approved have increased by 11% or to a total of 52 240 units, as opposed to 47 079 units in 2010. Approvals, of course, don't mean much if the buildings aren't constructed. The report indicates that new housing construction was down by 0.5% or 184 units in 2011 from 40 679 units in 2010. As a matter of interest the greatest percentage of residential buildings completed are in the Western Cape and Gauteng. The report does conclude that the increased activity in terms of planning for new housing in 2011 should lead to more construction in 2012 - particularly in terms of the construction of flats and townhouses. This prediction is indeed, providing true in that lower income housing and/or higher-density housing is becoming increasingly popular with developers and the public.
LOWER INCOME HOUSING
Government has allocated R50.5 bn for construction of low-income housing and the upgrading of informal settlements in secondary cities. According to an article in Business Day, government has also set aside another R27bn for the upgrading of informal settlements in large cities - funding that will be made available over the next three years. These projects will do much to alleviate the plight of the pool living there by erecting housing in these areas, whilst also giving a boast to their local construction companies. These houses also provide a stepping-stone from which their owners can upscale in future.
Much is often made of foreign investment in local property - perhaps in part because these investments are often high-profile properties in prime locations such as the Cape Town beachfront, with a price tag to match. These days, foreign investment makes a small contribution to the local property market. According to the FNB Property Barometer the impact remains unchanged at 4% The report does look back at the heydays of 2008 where these investments comprised 20% of the market. It is safe to say that such peaks will not soon be repeated. That said, the percentage has increased to 4% from a low of 2% in 2010. There is also a small surge in the number of SA expatriates buying property rising to 3%. Interestingly, the survey indicates that the majority of foreign buyers in local market remains small there are indications that their contributions to the local property market are on the upsurge once more.
While the market has not recovered - in general - these indicators do point to a slow improvement. Key factors for long-term growth remain the approval of home loans, a decrease in the debt-to-income ratio of buyers, a stable interest rate, and an injection into the residential construction market. "Should these criteria be met, the property market stands to not only com out of its current slump, but to grow substantially in the future,"believes Bruce Swain.
ARTICAL BUBLISHED: PROPERTY PROFESSIONAL JULY/AUGUST 2012 ADDITION.