Comment - Lynette Nicholson (Head Research at FNB Home Loans)
News > news - 14 Jan 2008
 2007 was a rather turbulent year for South African residential property buyers and sellers alike. Affordability has been affected by four interest rate hikes during that year and the introduction of the National Credit Act in June has also influenced the property market. Despite this however, the residential property market is robust and healthy, and the outlook for 2008 is optimistic.

The FNB Residential Property Barometer for the 3rd Quarter 07 indicated that:

· Activity in the property market is at its lowest point since 2003
· Properties are taking on average 11 weeks to sell, which is the longest time since the inception of the survey in 2003
· 82% of property sellers are not realizing their asking prices
· Buy-to-let investors have fallen dramatically to 12%
· The proportion of first time home buyers has also decreased to 14%

All of this seemingly gloomy information, however, needs to be put into context – where has the market come from? Back in the property boom period of 2003/2004, house price growth was exceptionally high, with growth in the mid 20% not being uncommon in most areas. A seller’s market prevailed with high demand for property and buy-to-let investors were eager to enter the market aiming for significant capital appreciation.

There were rumours of a “property bubble” and debates about when it would burst. This collapse never came and the property market settled down at more realistic price growth levels.

Property price growth is set to average out at above 12% for 2007, still a very healthy market indeed.

Since the boom in 2003/2004, the demand for property shifted from the upper end of the market (i.e. properties priced at R1.2 mill and above) to the more affordable segment of the market (i.e. properties priced up to about R750k) which includes to a large extent, the first time home buyers market.

This latter segment of the market has witnessed very impressive growth of around 20% over the last two years, but will now certainly be affected by the National Credit Act requirements and the rising interest rates.

During the boom times, the property seller was in the pound seat with huge demand existing and high prices being obtained. This shifted in recent times to become a buyers market, with buyers becoming more discerning, prices moderating, and properties remaining on the market for longer.

And now, whose market is it now? It is probably the market for the more affluent buyer who is not that affected by interest rates and who is on the lookout for a property where the seller is hurting due to interest rate increases and is eager to sell.

The buy-to-let market has also slowed down considerable during 2007. During the boom period, approximately 25% of buyers were buy-to-let investors, and this has reduced to 12%. Relatively low rental yields may have initially been the catalyst for lower buy-to-let property purchases, but this trend has been compounded by affordability constraints imposed by the NCA and interest rate hikes.

This market will be an interesting one to watch in 2008, as the demand for rental property is sure to increase given that many potential home buyers may not be able to afford to buy, and may look to rent. This could make the buy-to-let market once again more attractive to investors and in turn, drive up rental yields.

In essence then, year on year average residential house price growth of between 12 – 15% suggests a robust market.

The heydays of 2003/04 are gone, but the property market has moderated, with more realistic prices being realised. We enter 2008 with a trail of interest rate hikes behind us, and this will have an impact on the market early in the year. This may be followed by a sideways move in interest rates, which would improve demand again.
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