JOHANNESBURG (August 20) - The accumulative effect of five-interest rate increases since June 2006 and the implementation of the National Credit Act (NCA) is cited by FNB as the most prominent factors for the slide in the current activity levels in the residential property market.
Activity levels, the bank notes in its FNB Residential Property Barometer for the second quarter of this year, is now at its lowest level since the bank launched the quarterly survey in 2003.
Previously the barometer indicated that the series of interest rate increases were being largely absorbed by consumers, probably as a result of relief on transfer duties in the lower end of the market. However, since the last rate increase in June the barometer suggests the accumulative increase of 2,5 percent over the last year is now being felt by consumers, resulting in the further cooling off of the market.
FNB also points out in its comprehensive review that for the first time in the survey the ‘very active’ sentiment is no longer evident in the market while the ‘not very active’ component has increased to its largest proportion post –NCA.
Similarly, there has been a steady decline in the proportion of first time buyers entering he market, shifting from 32 percent in the middle of 2005 to to 16 percent during the second quarter of 2007. First time buyers are generally affected by affordability.
Furthermore, more than 43 percent of real estate professionals claim that applicants are struggling to qualify for home loans. In the lower priced segment of the market, 67 percent claim qualification and affordability issues are becoming significant hurdles for this market to secure funding. However, industry professionals operating in the upper end of the market, affirm that their customers are more immune to the effects of the NCA largely due to the proportion of cash buyers in this market.
The survey also found that while many of the 150 real estate professionals canvassed believed that the NCA is good for the South African market, many are concerned about the effect it is having on their business and the effect that it will have on the ‘new generation’ of the market. The speed at which home loan deals are finalised has slowed down irrespective of the size of the loan, with 31 percent stating that it is taking much longer for the loan to be approved.
In terms of year-on-year increases as measured by the survey, Pietermaritzburg, with an increase of 21 percent recorded the higher price increase in KwaZulu-Natal between the second quarter of last year and the same period of this year.
Pinetown, was next highest, with a rise of 19 percent followed by Westville (18 percent), Amanzimtoti (17 percent), Durban Central (9 percent) and Chatsworth with a year on year rise of five percent.
FNB was ranked first in the premium segment by the industry professionals in terms of its ability to smoothly incorporate the NCA requirements into the processes. The same professionals ranked FNB as an industry leader for general NCA readiness and ongoing process implementation.