Now is the right time to invest in South African residential property

While it is undeniable that year-on-year growth in the housing market did slow down fractionally from April 2013 and that consumer confidence hit a new low in the fourth quarter of last year (-7 on the scale), those commentators on the residential property market who in recent months have been saying that from here on the market will improve, albeit slowly, are almost certainly correct.

This is the view of Mike van Alphen, National Manager of Rawson Finance, the Rawson Property Group’s bond origination division. Speaking to staff last week, van Alphen said that at least three factors give reasons for optimism.

“The first,” he said, “is that, although it was down by 1% to 2% since April of last year, nominal house price growth, according to the latest Absa figures, now stands at around 9%, with the real price growth (i.e. allowing for inflation) at about 4%. What the investor/potential house buyer has to realise is the massive (± 20%) improvement in nominal terms, since the bottom of the graph was hit in early 2009, puts today’s figures on a par with the bullish figures of 2010 and signals a huge turnaround. Many housing sectors elsewhere in the world would be extremely grateful to have growth figures of this magnitude.”

A second reason for confidence, said van Alphen, is that growth in household credit balances has been contained in recent months – to 2,5% year-on-year. 

“This indicates that South Africans are at last coming to terms with today’s tough economic conditions and are once again focusing on priorities such as housing rather than the consumer goods which caused retail sales to rise so dramatically during the last year. Although mortgage borrowing is unlikely to see a big upturn this year, they will almost certainly from now on continue at a satisfactory rate. “This,” van Alphen added, “is reflected in Rawson Finance’s turnover figures, which, like other bond origination divisions, have seen a 35% increase year-on-year.”

A third and very obvious reason for optimism and for advising people to get into property now, said van Alphen, is that interest rates continue to run at the all-time lows. What is more, he said, they are unlikely to rise by more than 0,5% in the last quarter of 2014 or early 2015.

“Our bond originators regularly tell our clients that with the average long term bond being granted today at 9,5% interest, there can be no better time to buy property – especially when it is appreciated that the short term interest on consumer goods is often twice that charged on long term mortgage bonds,” said van Alphen.

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