Outlook for residential property price growth increasingly positive

Recent statements made by estate agency Anne Porter Knight Frank, about the ten-year cyclical nature of property and the strong likelihood that South African residential property is now into a recovery phase, appear to be corroborated by the latest FNB Property Barometer published in the first week of May.

This shows a further, albeit slight, acceleration in home price growth, which is now up from a revised 7.1% year-on-year rate for February to 8.6% year-on-year for April.

This,  quoting the FNB review, indicates that since the ultra-high real house price growth peak of March 2008, real house prices adjusted for cost inflation were only 12.6% lower than the peak March 2008 high. In nominal (i.e. cash) terms they are 13.3% higher.

These figures in themselves seem to me to be fairly satisfactory. Other figures provided by FNB are even more impressive. These show that real house prices for February were 70.3% higher than they were in February last year and in nominal (cash terms) they are 231.7% higher they were in April 2000.  I doubt very much if many stock exchange shares can record similar growth.”

FNB Economist John Loos, ascribes the recent improvement to a good fourth quarter 2011 GDP performance (which was 3.2% year-on-year), to increased job security and, perhaps above all, to low interest rates.

I agree with FNB, when they suggest that psychologically the 2008/2009 recession had a long-term dampening effect on buyer confidence from which we have still not recovered. It did cause some people to become afraid of commitment and risk. These bad memories are, however, now starting to fade and the ongoing low interest rates are creating a perception that risk is now significantly lower.”

The generally positive note of the FNB review is supported by the group’s valuers’ report which reveals an increase in demand in the last quarter of 2011 and the cut-back in available stock. It is revealing that the FNB market strength index now stands at 45.2, showing that the 50/50 breakeven point between supply and demand is now not far off, although present stock still slightly exceeds demand.

The FNB survey  predicts that despite the anticipation of slower global and economic growth in 2012, which will probably feel the impact of recent developments in Europe, South African average house price growth for 2012 will be 6%.

Considering it was only 3.2% in 2011, this is a very real improvement and ties in with Anne Porter Knight Frank’s repeated statements that by mid-2013 the property sector will be seeing an upturn and house price growth will move ahead of inflation, which, it should be noted, FNB now say will be kept in the 6% bracket within the next few months and which in turn should lead to interest rates remaining low and possibly even dropping 0.5%.

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