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It's still a good time to buy a house

The affordability of housing should remain favourable this year, given declines in real house prices and the prospect of flat interest rates.

That means it is still a good time to buy property, Jacques du Toit, senior property analyst at Absa Home Loans, said this week.

Speaking at the launch of Absa Home Loans's latest housing review, Du Toit said the affordability of housing had improved.

The decline of the prime lending rate from 15.5% in late 2008 to 9% by 2010 meant that the average mortgage repayment declined by about 34%, he said.

"The interest-rate environment had a major positive effect on the affordability of housing," he said. "However, the consumer is currently in a difficult space in terms of his finances. Household debt levels are lower than in 2008, but a lot more consumers are sitting with impaired credit records, which makes it difficult for them to access credit.

"Also, inflation is picking up, which is having a major negative effect on their spending power. Property running costs have also increased quite a lot, and, against this background, one has to ask how many households can actually make use of this affordability."

Du Toit said although inflation was expected to stay above 6% for the year, he did not expect any movements in interest rates this year.

He expected the pick-up in employment, which started in the second half of last year, to continue at a relatively subdued rate, which will lead to continued, albeit low, growth in household disposable income and consumption.

"The affordability of property will remain one of the most important factors driving the market forward."

Property analyst Erwin Rode made headlines in January when he said houses were fundamentally overvalued by at least 25% and that house prices would, as a consequence, decline in real terms over many years.

While estate agents and banks deny this, they concede that house prices are expected to decline further in real terms for at least this year.

Absa Home Loans expects nominal price growth in the middle segment of the market to remain relatively low after coming in at 2.2% last year. With inflation expected to remain above 6% for the whole year, that means prices will deflate further in real terms, Absa said.

First National Bank (FNB) household and property sector analyst John Loos said at the beginning of the month that he still expected slow, single-digit house-price growth.

The bank forecasts average (nominal) house-price growth of 4.2% for the year, compared with 3.2% last year. The FNB house-price index grew by 6.6% year on year in February in nominal terms, but, in real terms, the index declined by 0.2% in January.

Bond originator ooba released its house-price statistics this week, which showed a 4.3% year-on-year nominal increase in property prices in February.

Although house prices are still in decline in real terms, some confidence is returning to the residential and non-residential building sectors.

Five bedrooms with en suite bathrooms no longer count when it comes to super-luxury homes. Now, with prices easily of R20-million, you need temperature-controlled walk-in closets, lifts, gyms, steam rooms, orchards, vineyards, indoor swimming pools and water walls.

And, says Samuel Seeff, chairman of Seeff Properties, there should be a media or cinema room, or both, a climate-controlled wine cellar, and his and hers main bathrooms.

Seeff, who was speaking at the Southern Africa Luxury Association wealth summit last week, said security was non-negotiable, and garages had to have space for more than eight cars.
Although fewer foreigners were buying super-luxury homes in South Africa, locals were still interested.

The sale of luxury homes peaked in 2007, when the industry concluded 129 deals in the R20-million-plus category. Last year, there were only 59 such sales.

Seeff said Nettleton Road in Cape Town was probably the prime street in South Africa, with prices ranging between R40-million and R70-million. Coronation Road in Sandhurst was the top end in Johannesburg. "But, brick for brick, you get more in Joburg."


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