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Housing market correction or crash - jittery consumers appear to flood market in property dump panic.
THERE APPEARS TO BE PANIC on the home front in South Africa. Industry players say the market's been flooded with housing stock since January, raising concern that this country's housing slump could be far more painful than had been anticipated. Finweek reports this week that realtors say SA's housing correction is far deeper and far wider than generally perceived and that the market could even be heading for a crash. The magazine says that SA's housing market has moved so rapidly over the past two months that statistical information available from banks and economists is outdated - it suggests that real time trends emerging at auctions provide a more reliable picture of the current state of SA's property market.
In an interview with Rael Levitt of Alliance Group, he maintains that residential property values are already falling. He reckons house prices have dropped between 5% and 15% over the past year, depending on the area. Sotheby's International Realty chairman Lew Geffen places the drop at between 10% and 15%, with Cape Town's Atlantic seaboard being the only exception. Says Geffen: "Sellers don't realise how bad the situation is. Growth isn't merely slowing - prices are actually falling."
Other estate agents say it's too early to determine whether house prices are indeed dropping. However, what everyone does agree on is that this month's rate hike - the latest of nine consecutive 50 basis point increases since mid-2006 - couldn't have come at a worse time for an already depressed housing market.
Samuel Seeff, chairman of Seeff Properties, says while there's been a dramatic increase in houses coming on to the market since the beginning of this year, sales volumes have plummeted. Seeff's property listings swelled from around 18 000 a year ago to the current 27 000 - a 50% increase in sales stock. At the same time the group's sales volumes dropped 27% in first quarter 2008 (year-on-year).
Seeff estimates that overall housing sales throughout SA could be down as much as 40%, as the bigger real estate brands tend to benefit in a downturn.
According to Finweek, several factors have come to the fore simultaneously in December last year that dealt market sentiment a massive blow. Those included SA's uncertain political outlook following the ANC's Polokwane congress, corruption charges against ANC party president Jacob Zuma and Police Commissioner Jackie Selebi, electricity supply cuts, a weaker rand, wobbly stock markets, yet another interest rate hike early in December and, of course, ongoing crime. Estate agents fear that consumers feel that Government doesn't have the ability to fix those problems. Some realtors have seen a 40% rise in the number of houses for sale from the beginning of this year.
What's particularly alarming is the increase in the number of people offloading properties because they're emigrating- an estimated 25% to 30% of current sellers are planning to leave SA.
Levitt told Finweek that the Alliance group has never seen such a sudden or huge surge in distressed sellers, as has been the case since January this year. The company's forced sales book was up 50% on an annualised basis in January and rising 30% month-on-month since. Distressed sales include foreclosures (properties repossessed by banks), insolvencies or homeowners selling on their own accord, where they can no longer afford monthly mortgage repayments or plan to emigrate.
Levitt says most distressed sales are happening in the R2m to R5m price bracket. Absa - SA's biggest mortgage lender, with a home loan book of R204bn - told Finweek it has seen a 35% rise in delinquencies (arrears) over the past year.
In addition, building activity is dropping, with actual residential completions expected to decline noticeably this year as builders face increased supply side shortages, such as municipal bulk infrastructure and electricity cuts.
Economists told Finweek that demand for housing will continue to grow over the longer term, as the inflow into SA's cities and economic expansion continues, saying that together with the housing backlogs from the past yet to be addressed, it suggests a robust long-term housing demand picture that's likely to be only temporarily interrupted.
However, the immediate outlook for a recovery in property demand remains bleak. Most property commentators - even self-confessed property bulls such as FNB property strategist John Loos - agree that the market's likely to remain stagnant for at least the next 12 to 18 months. Loos told Finweek: "The latest interest rate hike raises the risk of national price deflation and will considerably delay the recovery in residential demand. Scenario planning to allow for the possibility of further rate hikes would be advisable." |
Posted on Sunday, May 25, 2008 (Archive on Wednesday, June 25, 2008)
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