select
|

Drop in oil price - what is the effect on the property market?

The recent drop in the oil price might influence the residential property market positively. And with the subsequent slower consumer price inflation, is set to lower interest rate hike risk.

FNB household and property sector strategist, John Loos had said that reports of a current oil "glut" should perhaps be a cause for happiness for those linked to the residential property market.

"While oil markets can be wild and unpredictable, it would appear that for the time being strong supply capacity has significantly reduced the risk of a 2008-style oil price spike.

"This, along with global food prices and the rand both more or less 'playing the game' contributes to the FNB expectation for consumer price inflation (CPI) to slow in 2015 to 5.2 percent from an expected 6.1 percent average for 2014.

"This, in turn, can take the pressure off the Reserve Bank to hike interest rates. Slower consumer price inflation would also be a boost for household disposable income growth in real terms, which drives the purchasing power for the housing market," he said.

However, Loos said significant risks still existed in terms of a large current account deficit on the balance of payments, which could lead to rand and imported price volatility, while food prices were always at the mercy of global weather patterns and South Africa's stagnating economy suffered from a lack of positive structural reform.

But he said there was for the time being a big apparent difference between the economic risks of 2008 and the present because of the oil market, leading to a sharply diminished source of "shock risk" to South Africa's residential market.

He said the residential market also looked set to experience a more noticeable increase in supply of new stock.

Although there had not been too many indications of a surge in building completions in the Statistics SA data, the square metres of building plans passed in September reached a year-on-year growth rate of 25.5 percent.

This meant that the year-on-year growth in the third quarter was a healthy 19.2 percent and significantly higher than the 0.55 percent growth achieved in the second quarter, he said.

Loos believed that the new development sector would respond more strongly to mounting supply constraints in the existing home market and the recent surge in plans passed was a sign of things to come next year.

He said that FNB was therefore projecting the square metreage of building completions next year to rise by 23.6 percent off the current low base, which was expected to alleviate some of the supply constraints that existed and contained the extent of further house price inflation increase.

But Loos said that FNB still believed there would be some mild strengthening in house price growth before a longerterm price correction "in the outer years past 2015".

FNB house price index released yesterday showed that average prices rose 7 percent year on year last month, which was faster than the previous month's revised 6.6 percent.

Loos said this recent renewed acceleration followed the slowdown in the average year-on-year house price growth rate dating back to the beginning of the year.

He said that the renewed price growth acceleration had a few potential implications for banks that provided home loans, including that the value of security backing existing home loans was enhanced, which was a key positive.

Loos added that the potential "downside" could be for future home buyers and home loan applicants if house price growth accelerated much further and began to outstrip wage inflation, which would begin to create a greater affordability challenge.


  Comment on this Article

  Please login to post comments

Post to my facebook wall
  
2000
Characters remaining


    Latest Property News
    • 24 Apr 2018
      The thing about the property ladder is that at some point in our lives we all have reason to want to climb a rung or two higher. Sometimes, it’s because we’ve outgrown our previous dream home, or because we want to be in a better neighbourhood that’s closer to work or to schools. Sometimes it’s because our circumstances have changed, and we’re taking care of elderly parents or relatives. Sometimes, it’s just because we want a property that reflects the financial status our hard work has won.
    • 20 Apr 2018
      Whenever changes in the political ecosystem of a traditional property market create uncertainty, smart investors begin to look elsewhere for new opportunities. Property experts at IP Global have analysed the trends and crunched the numbers to find new markets to explore in Europe and the United States.
    • 20 Apr 2018
      Energy and water self-sufficiency are increasingly important factors in home buyers’ choice of property – especially in Cape Town where the extreme drought of the past few years has made municipal supply costly as well as uncertain.
    • 19 Apr 2018
      During the last decade, rampant development has progressively transformed Cape Town’s property landscape with densification being the order of the day, but there are still one or two hidden gems like Scarborough which have retained their original character, offering an inimitable lifestyle and an attractive investment opportunity.
    • 19 Apr 2018
      The rental market is a cut-throat sector of the real estate market that waits for nobody. According to Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, first-time renters need to be fully prepared before they even start the process of looking for a place to rent in order to avoid the disappointment of losing out on their ideal property.
    • 19 Apr 2018
      Choosing to buy your first home instead of continuing to rent is a big decision that will usually take some time to put into action, but the sooner you can save up a sizeable deposit, the closer you will be to reaching your goal.
    • 18 Apr 2018
      Selling your home is no small task and as you will quickly find out, there are a lot of misconceptions about the process. Gerhard van der Linde, Seeff's MD in Pretoria East lists the top 5 misconceptions when you are selling your home.
    • 18 Apr 2018
      The Cape Town municipality is now installing water-management devices at properties that have been non-compliant with the new level 5 water restrictions and there are talks of fines between R5,000 and R10,000 for households that use too much water.
        
    X
    Subscribe to the MyProperty Newsletter

    Name  
    Last Name  
    Email Address  
    Email Frequency
    select
    X
    Share this Page

       
    For Sale Property
    Rental Property
    More Options
    About
    Connect with us
    FEEDBACK