The SA housing market could deteriorate this year due to expected interest rate hikes of between 1.5% and 3%, warned Neville Berkowitz, property economist and adviser to estate agency HomeBid.
His research shows that 289,631 homes were sold and transferred in 2015 – 0.2% fewer than in 2014. The average house price was R1,234,120 at the end of 2015 – up 0.94% compared to the previous period.
“Home buying and selling activity as well as house prices are expected to deteriorate this year and there are a number of factors that are going to affect the housing market,” said Berkowitz.
In his view the biggest impact will come from the expected interest rate hikes which will negatively affect mortgage affordability, while the stalling economy will limit salary increases and new employment across the board.
The reduced affordability of both existing homeowners paying higher monthly mortgage amounts and first-time home buyers will translate into a buying down in the market, according to Berkowitz.
“The buying pyramid will see more activity towards the more affordable lower part of the market,” he said.
At the same time mortgage lenders are expected to tighten their lending criteria to accommodate a 1.5% to 3% per annum jump in interest rates. This is expected to then reduce the number of home sales and transfers and reflect a drop in actual home prices.
“The lower one goes down the home buying pyramid, the smaller the impact on falling home prices,” said Berkowitz.
At the same time, he said the falling rand should make South African property prices very attractive to foreign buyers – “if they have the confidence to invest in South Africa”.
“Overall, homeowners will have to adjust their expectations when pricing their homes for sale and when looking to buy. This is due to more expensive mortgage finance,” said Berkowitz.
Property statistics by bond originator ooba for the fourth quarter of 2015 show house prices continued to grow in excess of inflation as the demand for residential property remained buoyant despite a weakening economy.
“Compared to the fourth quarter of 2014, the average purchase price increased by 7.5%, surpassing the R1 million mark – from R978,502 to R1,051,809,” according to ooba.
The average purchase price of property bought by first-time buyers increased by 5.6%, while the average deposit of first-time buyers dropped by 21% compared to the fourth quarter of 2014. According to ooba, this is indicative of first-time homebuyers’ continued ability to access finance in a competitive home loan market.
Rhys Dyer, ooba’s CEO, said he is not expecting to see significant changes in the residential property market’s dynamics in 2016.
He believes the market will remain constrained in terms of supply, specifically in urban areas.
“The slower economic growth and exchange rate depreciation, which will drive inflation increases and consequently interest rate increases and cost of living increases, are likely to result in a slowdown in demand for residential property in 2016,” said Dyer.
“This expected slowdown in demand, coupled with some improvement in property supply levels, will begin to impact property price growth into 2016.” However, ooba does not foresee significant reductions in property price growth this year. Dyer expects a growth rate of between 5% and 6% in 2016.
“We anticipate that more buyers will purchase within their affordability constraints and at lower levels, and that banks will drive buyers to put down larger deposits. Banks will be watching the consumer affordability position very carefully and will tailor their lending approaches, both in terms of the homebuyer and the property itself, to contain risk,” said Dyer.
Lew Geffen, chairperson of Lew Geffen Sotheby’s International Realty, expects the fear-driven economy to push property investment in 2016.
“The opportunity to move investments offshore has passed; the stock market is immensely volatile and this will be the year when intensified property investment is the order of the day as the safest means of wealth protection,” said Geffen.
“People are scared. The proverbial ship has sailed now in terms of moving wealth offshore, because the currency is simply too weak; it’s far too expensive to emigrate and there are few investment opportunities better than property that will guarantee a return on investment.”
In his view the mid-level and luxury property markets are likely to show more activity this year than in 2015, which should in turn push up demand.