Slow burn for property in 2011 as buyers put price first

The residential property market has several factors in its favour going into 2011, including exceptionally low interest rates, slower-than-expected consumer price inflation and decreasing levels of household debt.
“However,” says Jan Davel, MD of the RealNet estate agency group, “no-one should be expecting any fireworks, because there is still a large stock surplus to be absorbed while economic growth and job creation are still sluggish.”
He says low interest rates are already helping the property market by putting extra money into household piggybanks and boosting the demand for credit such as home loans. “Over the past few months this has already been evident in an increase in home sales activity that will no doubt continue if there is another rate cut early in the year, which many economists are predicting.
“Meanwhile, Standard Bank has estimated that inflation will average 4,6% y/y in 2011, so even if house prices only grow at 7% - which we think is what we can reasonably expect - these will still beat inflation in most cases.
“Nevertheless, we believe that property professionals and consumers will all still need to be cautious and patient. We are not going to see another boom period like 2003 to 2006 anytime soon. The market is going to take some time to recover, and we don’t foresee a major upswing in 2011 or even 2012.”
Having said that, though, Davel foresees that there will be noticeable growth in the “small house” segment” (80 to 140sqm) where prices currently average around R780 000 – because this is no longer only the domain of first-time buyers.
“In fact, we are finding that first-time buyers currently make up a significantly smaller percentage of buyers than previously, and that there are also fewer single-status buyers. Couples who can pool funds are stronger in the market place, while those with cash reserves are far more successful in being able to secure bonds.
“But these purchasers, who are often second and third-time buyers, are now often targeting more affordable areas and smaller homes in an effort to contain living costs, rather than seeking to upgrade to bigger homes and higher-priced areas as they tended to do previously.”
Indeed, he says, reports from RealNet franchisees around the country indicate that price is once again the primary consideration in buying decisions, followed by concerns about rates and taxes and electricity expenses as well as home maintenance costs.
“We are finding, for example, that buyers are happy to drive a few kilometers further to work as long as the house price is right – which is one reason why the bank-led programmes to sell distressed / repossessed properties have been such a success.
“Similarly, while access to shops, schools and major transport routes is still important, these are also secondary considerations to price and running costs in almost every case.”
Issued by RealNet

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