House prices in Britain fell by 3,6% in September, the largest drop in prices since 1983 according to mortgage lender Halifax.
It says the figures show that the housing market there is rapidly losing steam after a brief recovery last year.
However, rival mortgage lender, Nationwide claimed last week that house prices actually rose by 0,1% and analysts point out that the drop in prices may just be a seasonal blip rather than a worsening trend for the property market.
Halifax says that for the three months to September house prices in Britain were down by 0,9% compared with the same period last year and points out the rate of decline is significantly slower than the quarterly changes of between 5% and 6% seen in the second half of 2008.
Mortgage approvals data supports Halifax’s views that the outlook for the property market in Britain remained bleak. The September data conflicts with the data released in August when house prices rose by 0,4% and showed an increase in the three-month annual rate of 4,6%.
Halifaxexpects the housing market to fall slowly for the rest of this year and it to continue to decline in 2011.
We offer property investment opportunities throughout South Africa and Europe
Friday, 8 October 2010
Friday, 1 October 2010
UK mortgage approvals hit 16-month low as housing market slows
Published: 10:35AM BST 23 Sep 2010
The number of mortgages approved for house purchase in Britain slumped to a 16-month low in August as activity in the housing market continued to decline.
For most of the year the number of loans approved for people buying a home has been running below 36,000 - a level economists consider to be consistent with house price falls Photo: Reuters
Only 31,767 loans were approved for people buying a property during the month, the lowest level since April last year, according to figures from the British Bankers' Association on Thursday.
It was the third consecutive month during which mortgage approvals fell, despite the fact that the property market usually sees a bounce in activity during the summer months.
The number of loans approved for people buying a home has been running below 36,000, a level economists consider to be consistent with house price falls, for most of this year.
David Dooks, BBA director of statistics, said: "Demand for mortgages continues to be weak despite more properties coming on to the market.
"Even with stable or falling house prices, the current economic climate makes it unlikely that demand will pick up in the near future."
Today's figures are the latest in a run of gloomy data on the housing market, with Nationwide reporting price falls of 0.9% in August.
The Council of Mortgage Lenders said earlier this week that lending in August fell to its lowest level for the month for a decade, while HM Revenue & Customs reported a fall in the number of homes changing hands during the month.
The drop in activity since the beginning of this year has prompted some economists to predict the market could be heading for a double dip.
But others have said recent falls in house prices are not unhealthy as the recovery in the property market had got ahead of improvements in the wider economy.
Howard Archer, chief UK and European economist at IHS Global Insight, said: "The BBA data showing mortgage approvals sinking to a 16-month low in August heightens our belief that house prices will trend down over the coming months.
"We suspect that house prices will fall by around 10pc between now and the end of 2011.
"In our view, the housing market really has not got much going for it at the moment, apart from low mortgage rates - and that is if you can get a mortgage."
But there was some slightly better news in the BBA figures, with net lending, which strips out redemptions and repayments, rising to £2.55bn - its highest level since February.
However, the figure was well down on the £3.35 billion advanced in August 2009.
The BBA attributed the ongoing weakness in net lending to the fact that homeowners were focusing on paying down their mortgage.
Credit card repayments were higher than new spending during the month, but once interest and charges were factored in, outstanding plastic debt rose by £172m.
Borrowing through loans and overdrafts contracted for the 16th consecutive month, with consumers repaying £187m more than they borrowed.
Savings levels bounced back in August to reach their highest level since March, when figures are often boosted by the approaching end of the tax year.
The amount consumers deposited rose by £2.19bn, up from an increase of £514m in July.
The number of mortgages approved for house purchase in Britain slumped to a 16-month low in August as activity in the housing market continued to decline.
For most of the year the number of loans approved for people buying a home has been running below 36,000 - a level economists consider to be consistent with house price falls Photo: Reuters
Only 31,767 loans were approved for people buying a property during the month, the lowest level since April last year, according to figures from the British Bankers' Association on Thursday.
It was the third consecutive month during which mortgage approvals fell, despite the fact that the property market usually sees a bounce in activity during the summer months.
The number of loans approved for people buying a home has been running below 36,000, a level economists consider to be consistent with house price falls, for most of this year.
David Dooks, BBA director of statistics, said: "Demand for mortgages continues to be weak despite more properties coming on to the market.
"Even with stable or falling house prices, the current economic climate makes it unlikely that demand will pick up in the near future."
Today's figures are the latest in a run of gloomy data on the housing market, with Nationwide reporting price falls of 0.9% in August.
The Council of Mortgage Lenders said earlier this week that lending in August fell to its lowest level for the month for a decade, while HM Revenue & Customs reported a fall in the number of homes changing hands during the month.
The drop in activity since the beginning of this year has prompted some economists to predict the market could be heading for a double dip.
But others have said recent falls in house prices are not unhealthy as the recovery in the property market had got ahead of improvements in the wider economy.
Howard Archer, chief UK and European economist at IHS Global Insight, said: "The BBA data showing mortgage approvals sinking to a 16-month low in August heightens our belief that house prices will trend down over the coming months.
"We suspect that house prices will fall by around 10pc between now and the end of 2011.
"In our view, the housing market really has not got much going for it at the moment, apart from low mortgage rates - and that is if you can get a mortgage."
But there was some slightly better news in the BBA figures, with net lending, which strips out redemptions and repayments, rising to £2.55bn - its highest level since February.
However, the figure was well down on the £3.35 billion advanced in August 2009.
The BBA attributed the ongoing weakness in net lending to the fact that homeowners were focusing on paying down their mortgage.
Credit card repayments were higher than new spending during the month, but once interest and charges were factored in, outstanding plastic debt rose by £172m.
Borrowing through loans and overdrafts contracted for the 16th consecutive month, with consumers repaying £187m more than they borrowed.
Savings levels bounced back in August to reach their highest level since March, when figures are often boosted by the approaching end of the tax year.
The amount consumers deposited rose by £2.19bn, up from an increase of £514m in July.
Airports let property markets take off
The development of airport infrastructure around SA is fuelling nearby commercial and residential property markets and while there are many who decry the effects of noise pollution, the impetus seems unstoppable.
So says Gerhard Kotzé, CEO of the ERA South Africa property group, who adds that airports and their expansion still generate mixed reactions, but there’s little doubt that the economies of surrounding areas benefit.
“South Africa, under the impetus of the Soccer World Cup and other influences, has extensively upgraded its airport infrastructure recently in terms of both international and regional feeder services.
“Unsurprisingly, the biggest investment of late has come from the Airports Company of South Africa (ACSA), which has now come to the end of a R17bn development programme, including the commissioning of spectacular new terminal buildings at OR Tambo International, Cape Town International and KZN’s King Shaka International airports among others.”
This kind of parastatal development is to be expected, he says, particularly in support of a major sporting event such as the World Cup but it’s interesting to note the private sector development of airports in recent years as well, including the major upgrades of Lanseria and Wonderboom airports.
“And new property development flows in the wake of these projects - in the case of Lanseria International for example, now Gauteng’s second biggest airport, a new R200m industrial estate with further investment of some R7bn over time is in the pipeline which in turn is expected to spark off additional residential development.
“Surrounding Wonderboom, a residential air park is being constructed along the lines of much talked-about developments of this nature in the US elsewhere in the world, while in the Welkom area a R3bn, three-phase development project including residential, entertainment, cultural and sports facilities is reportedly on the cards.”
Similarly, the development of King Shaka International north of Durban has definitely stimulated property markets in La Mercy, Umhlanga, Ballito and other north coast centres while in Mpumalanga, the Kruger Park
Mpumalanga International airport is credited with spurring all manner of economic activity in Nelspruit and beyond, Kotzé notes.
“Clearly there will always be those who avoid acquiring property in airport approach areas, but on balance it would seem the benefits of airport development for the property sector are very positive.”
Elwyn Schenk, Pam Golding Properties (PGP) area principal in Umhlanga, Umdloti and La Mercy areas, says the Umhlanga node north of Durban is firmly entrenched as the area of choice for residents, investors and commercial end users alike.
“Thus prices in the area have remained fairly stable during the difficult economic conditions. Part of the reason for this, we believe, is that the potential for the area has been enhanced by the King Shaka International Airport and the Dube Tradeport.”
Durban's north coast has all the ingredients to develop into a similar, but still different, version of Cape Town's Atlantic Seaboard.
“The mild and sunny climate year round, beautiful beaches – add to this the rapid growth of the Umhlanga node and proximity to Gauteng (one hour's flight) and you have all the ingredients for rapid future growth. While certain areas such as Umhlanga and Umdloti are heavily developed, there is significant coastal land still available for expansion, in particular La Mercy, 5km from King Shaka Airport, offers substantial potential.”
“Global trends have shown that areas in close proximity to an international airport benefit from sustained and rapid growth. Commercially the Dube Tradeport will serve as a catalyst for economic development which will see KZN emerge as a major SA business node, serving Sub-Saharan Africa and the Far East in particular.
Experience has shown that property prices, both residential and commercial, will benefit from these developments. Commercial demand will come for hotels, engineering and other industries which service the airport, such as food services and import/export companies.”
Schenk says apart from the normal infrastructural development around airports – fuel depots, catering services, maintenance etc. – history the world over has shown that a new airport in particular will bring substantial additional development in peripheral industries such as freight companies, import/export agencies and related activities. “Passenger services and hotels are also attracted to a new airport facility.”
“Thus airports bring in their wake a substantial permanent population, together with a transient population ranging from contract workers to every day tourists.”
The effects of these demographic changes on the property industry are profound, especially in the medium to long term. “The trend for big businesses to move from the CBD into the north has been evident for some years and Umhlanga has been a prime beneficiary of this.”
He says future expected trends arising from the airport area will be a demand for mid-price housing from the blue collar workers, a surge in rental demand for the same reason and an increase in investor demand.
Clive Greene, PGP principal in Ballito, says the King Shaka Airport has created positive sentiment in the market. "Rental enquiries have increased twofold."
He says enquiries on properties for under R1m in the vicinity of the airport have picked up. “Sales on these lower cost properties are selling well. Caledon estates are nearly sold out with over 100 units sold.
In Sheffield Manor Estates there have been over 50 sales in the last five months and Sheffield Manor over 100 sales in the last 10 months. Simbithi Estate continues to sell very well, offering a secure lifestyle for old and young families.
He says commercial development will definitely increase as land has been allocated around the airport for development and Ballito is starting to offer large tracts of land for commercial use. “This, in turn, will increase demand for more residential property. The future for this area in the medium to long term is exceptional.” – Eugene Brink
So says Gerhard Kotzé, CEO of the ERA South Africa property group, who adds that airports and their expansion still generate mixed reactions, but there’s little doubt that the economies of surrounding areas benefit.
“South Africa, under the impetus of the Soccer World Cup and other influences, has extensively upgraded its airport infrastructure recently in terms of both international and regional feeder services.
“Unsurprisingly, the biggest investment of late has come from the Airports Company of South Africa (ACSA), which has now come to the end of a R17bn development programme, including the commissioning of spectacular new terminal buildings at OR Tambo International, Cape Town International and KZN’s King Shaka International airports among others.”
This kind of parastatal development is to be expected, he says, particularly in support of a major sporting event such as the World Cup but it’s interesting to note the private sector development of airports in recent years as well, including the major upgrades of Lanseria and Wonderboom airports.
“And new property development flows in the wake of these projects - in the case of Lanseria International for example, now Gauteng’s second biggest airport, a new R200m industrial estate with further investment of some R7bn over time is in the pipeline which in turn is expected to spark off additional residential development.
“Surrounding Wonderboom, a residential air park is being constructed along the lines of much talked-about developments of this nature in the US elsewhere in the world, while in the Welkom area a R3bn, three-phase development project including residential, entertainment, cultural and sports facilities is reportedly on the cards.”
Similarly, the development of King Shaka International north of Durban has definitely stimulated property markets in La Mercy, Umhlanga, Ballito and other north coast centres while in Mpumalanga, the Kruger Park
Mpumalanga International airport is credited with spurring all manner of economic activity in Nelspruit and beyond, Kotzé notes.
“Clearly there will always be those who avoid acquiring property in airport approach areas, but on balance it would seem the benefits of airport development for the property sector are very positive.”
Elwyn Schenk, Pam Golding Properties (PGP) area principal in Umhlanga, Umdloti and La Mercy areas, says the Umhlanga node north of Durban is firmly entrenched as the area of choice for residents, investors and commercial end users alike.
“Thus prices in the area have remained fairly stable during the difficult economic conditions. Part of the reason for this, we believe, is that the potential for the area has been enhanced by the King Shaka International Airport and the Dube Tradeport.”
Durban's north coast has all the ingredients to develop into a similar, but still different, version of Cape Town's Atlantic Seaboard.
“The mild and sunny climate year round, beautiful beaches – add to this the rapid growth of the Umhlanga node and proximity to Gauteng (one hour's flight) and you have all the ingredients for rapid future growth. While certain areas such as Umhlanga and Umdloti are heavily developed, there is significant coastal land still available for expansion, in particular La Mercy, 5km from King Shaka Airport, offers substantial potential.”
“Global trends have shown that areas in close proximity to an international airport benefit from sustained and rapid growth. Commercially the Dube Tradeport will serve as a catalyst for economic development which will see KZN emerge as a major SA business node, serving Sub-Saharan Africa and the Far East in particular.
Experience has shown that property prices, both residential and commercial, will benefit from these developments. Commercial demand will come for hotels, engineering and other industries which service the airport, such as food services and import/export companies.”
Schenk says apart from the normal infrastructural development around airports – fuel depots, catering services, maintenance etc. – history the world over has shown that a new airport in particular will bring substantial additional development in peripheral industries such as freight companies, import/export agencies and related activities. “Passenger services and hotels are also attracted to a new airport facility.”
“Thus airports bring in their wake a substantial permanent population, together with a transient population ranging from contract workers to every day tourists.”
The effects of these demographic changes on the property industry are profound, especially in the medium to long term. “The trend for big businesses to move from the CBD into the north has been evident for some years and Umhlanga has been a prime beneficiary of this.”
He says future expected trends arising from the airport area will be a demand for mid-price housing from the blue collar workers, a surge in rental demand for the same reason and an increase in investor demand.
Clive Greene, PGP principal in Ballito, says the King Shaka Airport has created positive sentiment in the market. "Rental enquiries have increased twofold."
He says enquiries on properties for under R1m in the vicinity of the airport have picked up. “Sales on these lower cost properties are selling well. Caledon estates are nearly sold out with over 100 units sold.
In Sheffield Manor Estates there have been over 50 sales in the last five months and Sheffield Manor over 100 sales in the last 10 months. Simbithi Estate continues to sell very well, offering a secure lifestyle for old and young families.
He says commercial development will definitely increase as land has been allocated around the airport for development and Ballito is starting to offer large tracts of land for commercial use. “This, in turn, will increase demand for more residential property. The future for this area in the medium to long term is exceptional.” – Eugene Brink
Strand Beach Road sales pick up
The Strand Beach Road property market has showed positive signs contrary to the general SA sectional title market during the 2008/9 period with growing sales figures since the latter part of 2009 – comparative to the depressed sales of the 2008/9 period
Benhard Wiese, principal associate of Cape Coastal Homes, says these better-than-national sectional title sales figures are attributable to the area offering much better value per square metre than the similar property offerings on e।g. the Cape Atlantic seaboard.
“The buyers interested in Strand Beach Road are also buying with a long term view – mostly viewing the property as their second home to be converted into their retirement home.”
He says only 7% of the registered sales of apartments older than three years on Beach Road have during 2010 been for less than present comparative property values per sqm – a sign of a solid market that escaped the storms of 2008/9 relatively unscathed.
“The availability and affordability of credit coupled with the surplus of available new development apartments on Beach Road since 2007 had suppressed capital growth during 2008 to 2010. According to CMA Info, there had been 46 sales in Strand Beach Road during 2008 - that is about four sales per month.”
The volume of sales, however (excluding inheritance), during 2009 grew to 86 transactions of which 25 were new developments and 61 were older complexes.
Excluding all new developments registered in the Deeds Office, there was still a growth in sales volume of about 37% from 2008 to 2009 on Strand Beach Road - totally contrary to statistics from SAPTG which indicate that nationally sectional title (apartment) property priced between R300k to R5m reported an overall decline of 39% in transfers between 2008 and 2009.
The average price per sqm for the 61 registered sales in 2009 for all apartments older than four years on Strand Beach Road (i.e. excluding the new developments which occurred at a higher average price per sq/m) was about R12,900/sqm whilst the new developments registered average prices in 2009 was R17,725/sqm.
The first semester of 2010 has seen a continuation of the growing sales trend on Strand Beach Road with 41 sales being registered according to SAPTG in the Deeds Office of which 14 were new developments built since 2008 (e.g. Hibernian Towers and Topaz).
The average price per sqm for the registered sales in the first semester of 2010 for all apartments older than four years on Strand Beach Road (i.e. excluding the new developments) was about R13,462/sqm.
The new developments average registered prices in 2010 have been ranging between R12,686/sqm for Ocean View to R23,225/sqm for Topaz.He says total registered sales for the first semester of 2010 for the 4 new developments on Strand Beach Road had been R30,524,151 at an average of R15,439 for the 1977sqm sold. That is about 13% lower than the average registered sales prices achieved for new developments during 2009 of R17,725 per sqm.
Interestingly enough, there has only been about a 13% difference in average prices obtained (registered) between older apartments and new developments (less than four years old) during 2010. The present price structure of Beach Road properties can be roughly categorised in different groups according to "age, finishes and size".
The smaller the apartment, the higher the price achieved per sqm. The quality of sea view also has a big effect on the property’s value.Prices obtained in 2008 varied between R7,600/sqm (Strandsig) to R24,700/sqm (Cape Sands). The apartment prices in 2009 varied between R8,500 per sqm (Welgelegen and Jacomahof) to R23,900 per sqm (Hibernian Towers). Beach front apartments were selling in 2003 from about R6k/sqm to about R9k per sqm.
Beach Road property in general has not been subjected to the same forces which have been experienced in e.g. the buy-to let investor property sectors where capital growth has seen fairly substantial drops. The growing foreclosure or bank repossessions trend created during 2008/9 and during the first semester of 2010 effected a strong downward pressure on prices obtained in the buy-to-let property market.
Some auctions at the entry level investor sectional title market (priced at up to R450k) have towards the end of 2009 seen prices drop by as much as 50% of what was the perceived value of the property in 2007. Auctions on Beach Road have, however, been a very small part of the transactional horizon and were therefore not a distinct negative capital growth factor at all.
Only a few distressed sales in some of the new developments took place – without any real effect on the rest of the older blocks, where most of the owners opted to keep their apartments from the market – especially if they did not need to sell.
From the 27 sales which had been registered in the Deeds Office during the first months of 2010, only two transactions took place at prices which seem to be much lower than other comparative properties per sqm – a Romilly apartment at R8,426/sqm and an apartment in Strandsig at R7,432/sqm.Only 7% of all transactions on Beach Road during 2010 amongst the older-than-4-year-old apartment blocks had been registered for much lower than comparative market value.
The last two years has been a sobering period for all property owners in the country – including Beach Road Strand. The unrealistic capital growth expectations have been tempered to pre-2003 growth levels.
Although apartment prices got far “out of touch” with incomes levels during the boom, it is to be expected that inflation will in the next few years close this gap considerably.
“Strand Beach Road has during the last few decades always operated on an eight to ten year tide pattern – with surges of new developments coming every eight to ten years. Buyers who are waiting for Beach Road prices to drop are doing it at their own peril,” he concluded.
Benhard Wiese, principal associate of Cape Coastal Homes, says these better-than-national sectional title sales figures are attributable to the area offering much better value per square metre than the similar property offerings on e।g. the Cape Atlantic seaboard.
“The buyers interested in Strand Beach Road are also buying with a long term view – mostly viewing the property as their second home to be converted into their retirement home.”
He says only 7% of the registered sales of apartments older than three years on Beach Road have during 2010 been for less than present comparative property values per sqm – a sign of a solid market that escaped the storms of 2008/9 relatively unscathed.
“The availability and affordability of credit coupled with the surplus of available new development apartments on Beach Road since 2007 had suppressed capital growth during 2008 to 2010. According to CMA Info, there had been 46 sales in Strand Beach Road during 2008 - that is about four sales per month.”
The volume of sales, however (excluding inheritance), during 2009 grew to 86 transactions of which 25 were new developments and 61 were older complexes.
Excluding all new developments registered in the Deeds Office, there was still a growth in sales volume of about 37% from 2008 to 2009 on Strand Beach Road - totally contrary to statistics from SAPTG which indicate that nationally sectional title (apartment) property priced between R300k to R5m reported an overall decline of 39% in transfers between 2008 and 2009.
The average price per sqm for the 61 registered sales in 2009 for all apartments older than four years on Strand Beach Road (i.e. excluding the new developments which occurred at a higher average price per sq/m) was about R12,900/sqm whilst the new developments registered average prices in 2009 was R17,725/sqm.
The first semester of 2010 has seen a continuation of the growing sales trend on Strand Beach Road with 41 sales being registered according to SAPTG in the Deeds Office of which 14 were new developments built since 2008 (e.g. Hibernian Towers and Topaz).
The average price per sqm for the registered sales in the first semester of 2010 for all apartments older than four years on Strand Beach Road (i.e. excluding the new developments) was about R13,462/sqm.
The new developments average registered prices in 2010 have been ranging between R12,686/sqm for Ocean View to R23,225/sqm for Topaz.He says total registered sales for the first semester of 2010 for the 4 new developments on Strand Beach Road had been R30,524,151 at an average of R15,439 for the 1977sqm sold. That is about 13% lower than the average registered sales prices achieved for new developments during 2009 of R17,725 per sqm.
Interestingly enough, there has only been about a 13% difference in average prices obtained (registered) between older apartments and new developments (less than four years old) during 2010. The present price structure of Beach Road properties can be roughly categorised in different groups according to "age, finishes and size".
The smaller the apartment, the higher the price achieved per sqm. The quality of sea view also has a big effect on the property’s value.Prices obtained in 2008 varied between R7,600/sqm (Strandsig) to R24,700/sqm (Cape Sands). The apartment prices in 2009 varied between R8,500 per sqm (Welgelegen and Jacomahof) to R23,900 per sqm (Hibernian Towers). Beach front apartments were selling in 2003 from about R6k/sqm to about R9k per sqm.
Beach Road property in general has not been subjected to the same forces which have been experienced in e.g. the buy-to let investor property sectors where capital growth has seen fairly substantial drops. The growing foreclosure or bank repossessions trend created during 2008/9 and during the first semester of 2010 effected a strong downward pressure on prices obtained in the buy-to-let property market.
Some auctions at the entry level investor sectional title market (priced at up to R450k) have towards the end of 2009 seen prices drop by as much as 50% of what was the perceived value of the property in 2007. Auctions on Beach Road have, however, been a very small part of the transactional horizon and were therefore not a distinct negative capital growth factor at all.
Only a few distressed sales in some of the new developments took place – without any real effect on the rest of the older blocks, where most of the owners opted to keep their apartments from the market – especially if they did not need to sell.
From the 27 sales which had been registered in the Deeds Office during the first months of 2010, only two transactions took place at prices which seem to be much lower than other comparative properties per sqm – a Romilly apartment at R8,426/sqm and an apartment in Strandsig at R7,432/sqm.Only 7% of all transactions on Beach Road during 2010 amongst the older-than-4-year-old apartment blocks had been registered for much lower than comparative market value.
The last two years has been a sobering period for all property owners in the country – including Beach Road Strand. The unrealistic capital growth expectations have been tempered to pre-2003 growth levels.
Although apartment prices got far “out of touch” with incomes levels during the boom, it is to be expected that inflation will in the next few years close this gap considerably.
“Strand Beach Road has during the last few decades always operated on an eight to ten year tide pattern – with surges of new developments coming every eight to ten years. Buyers who are waiting for Beach Road prices to drop are doing it at their own peril,” he concluded.
Friday, 17 September 2010
How Affordable is Cape Town Property?
Amid tough economic times and ongoing difficulty in obtaining mortgage finance, the importance of affordability in the housing market remains paramount.
Accessible pricing remains a major obstacle to many new entrants to the housing market, and is a crucial factor for many other buyer types, including those downscaling for retirement or wishing to upgrade to meet the needs of a growing family.
Yet affordable homes are not a myth, says Pam Golding Properties’ MD for the Western Cape metro region, Laurie Wener.
“There are a number of suburbs in the Cape Town metropolitan area where one can obtain decent, well-built homes in the R600k to R3m price range, ranging from compact apartments ideal for young couples and professionals, to larger free-standing homes. If one only knows where to look, one may be surprised by the value for money which can be obtained, and the large variety of stock which is currently on offer.”
Western Seaboard Cape Town’s Western Seaboard has long been a popular area for first-time buyers, young professionals and downscalers seeking compact, affordable homes which are easy to maintain.
In recent years as the residential area has expanded in size, so too has the offering of schools, shops, hospitals and other amenities, making these suburbs increasingly popular with young families as well.
PGP’s area manager, Ivan Swart, says there is a wide variety of affordable housing options to choose from in suburbs like Parklands, Sunningdale, Flamingo Vlei and Bloubergrant, as well as in the Melkbosstrand area further to the north.
These range from studio apartments to secure complexes and even free-standing homes. “Newer areas such as Big Bay and Atlantic Beach Golf Estate are growing rapidly in popularity with this segment of the market, and we continue to see a lot of offers from first-time buyers, older buyers downscaling for retirement, and young professional couples.
Unfortunately the limited access to mortgage finance remains an inhibiting factor, but the demand is certainly there.”
For R600k to R1m, one can obtain a two-bedroomed apartment, ideal for new entrants to the housing market and young couples. In the R1m to R2m price range, one can buy a sizable free-standing family home with three bedrooms and a double garage in Parklands, Sunningdale, Flamingo Vlei, Bloubergrant, or Melkbosstrand. This price bracket will also secure a starter home in the secure Atlantic Beach Golf Estate.
“For buyers in the R2m to R3m bracket there is even more choice, from a free-standing starter home in the Atlantic Beach or Sunset Links Golf Estates, Big Bay estates or Sunset Beach, to a two-bedroomed beachfront apartment, suited to those who are retiring or for those wanting a lock-up-and-go lifestyle.
We have a wide selection of stock in the latter category at present, with some excellent value for money on offer.”
South Peninsula
The towns of the South Peninsula also offer a number of options for buyers seeking property below R3m – and they often come with a view or even walking-distance access to the beachfront।
One can obtain a free-standing three-bedroomed home in Kommetjie for under R2m, or a cottage in Scarborough for R1,25m.
PGP’s area manager Sandi Gildenhuys says there are also a number of homes in this price range in Fish Hoek. “One can obtain a one- or two-bedroomed apartment in central Fish Hoek for just R500k to R600, while most free-standing homes in the valley sell from around R850k to R1,4m.”
Mountainside properties commanding panoramic views are a little pricier, but still a very affordable R1,8m to R3m. The town has always been popular with retirees due to its lovely flat and easy-to-access beachfront, but is also attracting young families and even professionals who commute into town.
Towns like Kommetjie and Noordhoek are also attracting increasing numbers of young families who are choosing to raise their children in a more rural environment, and who want affordable, sizable family homes.
Southern Suburbs
Cape Town’s leafy Southern Suburbs are widely perceived as offering quality family homes on large plots, located close to the University of Cape Town and a number of top schools. The reputation is fully justified, and such homes frequently come with substantial price tags.
But, says PGP’s area manager Howard Markham, it would be inaccurate to think that the Southern Suburbs are out of range of smaller budget buyers. “There are a number of options for entry-level buyers and young couples wanting to obtain a foothold in this sought-after market, and even for family buyers needing larger homes.
“Suburbs such as Observatory, Claremont, Kenilworth and Pinelands offer plenty of homes priced under R3m, as do Bergvliet and certain pockets of Tokai. One can still obtain a three-or four-bedroomed home on up to 800sqm, within this range.
And Harfield Village, for example, is growing steadily in popularity with first-time buyers and young couples without children, who love its manageable-sized plots, attractive homes and central location. One can buy a four-bedroomed home with a double garage here for R2,35m.”
Markham says there is also limited activity in the investor market under R3m at present, mainly from parents buying sectional title units for their student children.
Atlantic Seaboard and City Bowl
The growth of residential opportunities in Cape Town’s Central City has opened up many new options for entry-level buyers and those seeking homes under R3m.
One can obtain starter apartments in the heart of the business district for around R500k for a bachelor unit, or R1m to R2,5m for larger two-bedroomed options. These are extremely popular with young professionals working in the city, and are also considered by investors due to the rental returns they can command.
Those wanting to live close to the sea might consider Mouille Point, where one can still obtain a one-bedroomed apartment from R1,25m. And in neighbouring Green Point, bachelor flats are priced from around R500k, while larger two-bedroomed units can be obtained for closer to R2m.
Although more upmarket areas of the City Bowl, such as Oranjezicht and Vredehoek, tend to attract higher prices, it is still possible to obtain older homes in these areas for under R2,5m, says PGP’s area manager Basil Moraitis – if one has the budget and willingness to carry out renovation work.
Lanice Steward, MD of the Cape Peninsula estate agency Anne Porter Knight Frank (APKF), says the emerging middle class will boost prices in the traditional Cape suburbs.
“Anyone buying for investment purposes in the Cape Peninsula right now will be onto a sound investment no matter which suburb he chooses,” said Steward.
“The reason is clear: with a mountain and a nature reserve taking up 65% of the available land, property in the traditional Cape suburbs will increasingly be in short supply. It is in these traditional suburbs that the emerging middle class aspire to live.
“This does not mean that Cape Flats suburbs like Grassy Park, Mitchells Plain and Ottery will not gain in value, but areas like Lower Wynberg, Rondebosch East, Diep River, Retreat, Goodwood and Sea Point, which are still low priced are set to take off.”
The best long term prospect, and the one she would tip to any person looking for a lifestyle as well as a sound investment, said Steward, is Simons Town.
“With commuting problems hitting the outlying areas, the convenience of a comfortable 53 minute train ride to the city is increasingly appreciated. Add to that a charming Southampton-type main street, good restaurants, a flourishing yacht club, a challenging golf course (currently in near-perfect condition), a lively cultural life and wonderful mountain walks and minimal crime, and it is quite clear that a decade from now Simons Town will be the place to live.”
This fact, said Steward, is already recognised by buyers who can expect to pay anything from R2,5m to R4m for a standard three bedroom house, but who are still able to find bachelor pads below R1m while at the upper end of the price range there are many homes priced in the R10m to R20m bracket. – Eugene Brink
Accessible pricing remains a major obstacle to many new entrants to the housing market, and is a crucial factor for many other buyer types, including those downscaling for retirement or wishing to upgrade to meet the needs of a growing family.
Yet affordable homes are not a myth, says Pam Golding Properties’ MD for the Western Cape metro region, Laurie Wener.
“There are a number of suburbs in the Cape Town metropolitan area where one can obtain decent, well-built homes in the R600k to R3m price range, ranging from compact apartments ideal for young couples and professionals, to larger free-standing homes. If one only knows where to look, one may be surprised by the value for money which can be obtained, and the large variety of stock which is currently on offer.”
Western Seaboard Cape Town’s Western Seaboard has long been a popular area for first-time buyers, young professionals and downscalers seeking compact, affordable homes which are easy to maintain.
In recent years as the residential area has expanded in size, so too has the offering of schools, shops, hospitals and other amenities, making these suburbs increasingly popular with young families as well.
PGP’s area manager, Ivan Swart, says there is a wide variety of affordable housing options to choose from in suburbs like Parklands, Sunningdale, Flamingo Vlei and Bloubergrant, as well as in the Melkbosstrand area further to the north.
These range from studio apartments to secure complexes and even free-standing homes. “Newer areas such as Big Bay and Atlantic Beach Golf Estate are growing rapidly in popularity with this segment of the market, and we continue to see a lot of offers from first-time buyers, older buyers downscaling for retirement, and young professional couples.
Unfortunately the limited access to mortgage finance remains an inhibiting factor, but the demand is certainly there.”
For R600k to R1m, one can obtain a two-bedroomed apartment, ideal for new entrants to the housing market and young couples. In the R1m to R2m price range, one can buy a sizable free-standing family home with three bedrooms and a double garage in Parklands, Sunningdale, Flamingo Vlei, Bloubergrant, or Melkbosstrand. This price bracket will also secure a starter home in the secure Atlantic Beach Golf Estate.
“For buyers in the R2m to R3m bracket there is even more choice, from a free-standing starter home in the Atlantic Beach or Sunset Links Golf Estates, Big Bay estates or Sunset Beach, to a two-bedroomed beachfront apartment, suited to those who are retiring or for those wanting a lock-up-and-go lifestyle.
We have a wide selection of stock in the latter category at present, with some excellent value for money on offer.”
South Peninsula
The towns of the South Peninsula also offer a number of options for buyers seeking property below R3m – and they often come with a view or even walking-distance access to the beachfront।
One can obtain a free-standing three-bedroomed home in Kommetjie for under R2m, or a cottage in Scarborough for R1,25m.
PGP’s area manager Sandi Gildenhuys says there are also a number of homes in this price range in Fish Hoek. “One can obtain a one- or two-bedroomed apartment in central Fish Hoek for just R500k to R600, while most free-standing homes in the valley sell from around R850k to R1,4m.”
Mountainside properties commanding panoramic views are a little pricier, but still a very affordable R1,8m to R3m. The town has always been popular with retirees due to its lovely flat and easy-to-access beachfront, but is also attracting young families and even professionals who commute into town.
Towns like Kommetjie and Noordhoek are also attracting increasing numbers of young families who are choosing to raise their children in a more rural environment, and who want affordable, sizable family homes.
Southern Suburbs
Cape Town’s leafy Southern Suburbs are widely perceived as offering quality family homes on large plots, located close to the University of Cape Town and a number of top schools. The reputation is fully justified, and such homes frequently come with substantial price tags.
But, says PGP’s area manager Howard Markham, it would be inaccurate to think that the Southern Suburbs are out of range of smaller budget buyers. “There are a number of options for entry-level buyers and young couples wanting to obtain a foothold in this sought-after market, and even for family buyers needing larger homes.
“Suburbs such as Observatory, Claremont, Kenilworth and Pinelands offer plenty of homes priced under R3m, as do Bergvliet and certain pockets of Tokai. One can still obtain a three-or four-bedroomed home on up to 800sqm, within this range.
And Harfield Village, for example, is growing steadily in popularity with first-time buyers and young couples without children, who love its manageable-sized plots, attractive homes and central location. One can buy a four-bedroomed home with a double garage here for R2,35m.”
Markham says there is also limited activity in the investor market under R3m at present, mainly from parents buying sectional title units for their student children.
Atlantic Seaboard and City Bowl
The growth of residential opportunities in Cape Town’s Central City has opened up many new options for entry-level buyers and those seeking homes under R3m.
One can obtain starter apartments in the heart of the business district for around R500k for a bachelor unit, or R1m to R2,5m for larger two-bedroomed options. These are extremely popular with young professionals working in the city, and are also considered by investors due to the rental returns they can command.
Those wanting to live close to the sea might consider Mouille Point, where one can still obtain a one-bedroomed apartment from R1,25m. And in neighbouring Green Point, bachelor flats are priced from around R500k, while larger two-bedroomed units can be obtained for closer to R2m.
Although more upmarket areas of the City Bowl, such as Oranjezicht and Vredehoek, tend to attract higher prices, it is still possible to obtain older homes in these areas for under R2,5m, says PGP’s area manager Basil Moraitis – if one has the budget and willingness to carry out renovation work.
Lanice Steward, MD of the Cape Peninsula estate agency Anne Porter Knight Frank (APKF), says the emerging middle class will boost prices in the traditional Cape suburbs.
“Anyone buying for investment purposes in the Cape Peninsula right now will be onto a sound investment no matter which suburb he chooses,” said Steward.
“The reason is clear: with a mountain and a nature reserve taking up 65% of the available land, property in the traditional Cape suburbs will increasingly be in short supply. It is in these traditional suburbs that the emerging middle class aspire to live.
“This does not mean that Cape Flats suburbs like Grassy Park, Mitchells Plain and Ottery will not gain in value, but areas like Lower Wynberg, Rondebosch East, Diep River, Retreat, Goodwood and Sea Point, which are still low priced are set to take off.”
The best long term prospect, and the one she would tip to any person looking for a lifestyle as well as a sound investment, said Steward, is Simons Town.
“With commuting problems hitting the outlying areas, the convenience of a comfortable 53 minute train ride to the city is increasingly appreciated. Add to that a charming Southampton-type main street, good restaurants, a flourishing yacht club, a challenging golf course (currently in near-perfect condition), a lively cultural life and wonderful mountain walks and minimal crime, and it is quite clear that a decade from now Simons Town will be the place to live.”
This fact, said Steward, is already recognised by buyers who can expect to pay anything from R2,5m to R4m for a standard three bedroom house, but who are still able to find bachelor pads below R1m while at the upper end of the price range there are many homes priced in the R10m to R20m bracket. – Eugene Brink
Home owners must reduce prices by 10pc to sell properties
A total of 32 per cent more estate agents reported a fall rather than a rise in house prices in August, compared to 8 per cent the previous month, according to the latest housing survey from the Royal Institution of Chartered Surveyors. That is the lowest reading since May 2009.
It comes amid a decline in the number of first-time buyers – a key component in maintaining values.
Stuart Allan, a RICS member from Bishop Auckland in Co. Durham, said: “There is a dearth of first-time buyers principally due to difficulties in obtaining mortgages and this has depressed the value of houses at the lower end of the market.
“These houses are typically selling for up to 10 per cent less than the estate agents advertised prices and this is reflected throughout the market.
“Vendors or property are required to be more realistic in their sale price expectations.”
Tom Goodley, a RICS member form Norfolk, said: “There appears to be a lot of over priced houses on the market, and a shortage of buyers. The basic economics of supply and demand must prevail.”
The share of the market occupied by first-time buyers dropped to 34 per cent in July, down from 38 per cent the previous month and the lowest proportion since the beginning of the credit crisis in August 2007, according to the Council of Mortgage Lenders.
First-time buyers are struggling to get on the property ladder as banks further tighten lending criteria.
These buyers have a typical deposit of 24 per cent of the value of their home, up from 21 per cent in April.
The CML also disclosed an increase in the number of loans approved to those buying a new home to 56,000 in July, up from 52,000 in June - although this remains significantly below long term averages.
Howard Archer, of economists Global Insight, said: “This mortgage data for July remains very low compared to long-term norms and does little to dilute suspicion that house prices will remain under pressure.
“It is also notable that mortgage approvals to first time buyers actually weakened in July, which suggests not only that they may be becoming more reluctant to move into the housing market in the current uncertain economic environment. It also suggests that first time buyers are finding it hard to get mortgages.”
Nicholas Leeming, of property website Zoopla.co.uk, said: “A crucial indicator of the health of the housing market is activity by first time buyers. The lack of attractive mortgage deals, combined with uncertainty around the economic impact of the government’s spending cuts affecting both lenders and borrowers, is seeing many frustrated first-time-buyers opt for renting in the short term.
“The mortgage market remains dominated by the cash-rich, with deposits on new homes increasing once again this month.”
It comes amid a decline in the number of first-time buyers – a key component in maintaining values.
Stuart Allan, a RICS member from Bishop Auckland in Co. Durham, said: “There is a dearth of first-time buyers principally due to difficulties in obtaining mortgages and this has depressed the value of houses at the lower end of the market.
“These houses are typically selling for up to 10 per cent less than the estate agents advertised prices and this is reflected throughout the market.
“Vendors or property are required to be more realistic in their sale price expectations.”
Tom Goodley, a RICS member form Norfolk, said: “There appears to be a lot of over priced houses on the market, and a shortage of buyers. The basic economics of supply and demand must prevail.”
The share of the market occupied by first-time buyers dropped to 34 per cent in July, down from 38 per cent the previous month and the lowest proportion since the beginning of the credit crisis in August 2007, according to the Council of Mortgage Lenders.
First-time buyers are struggling to get on the property ladder as banks further tighten lending criteria.
These buyers have a typical deposit of 24 per cent of the value of their home, up from 21 per cent in April.
The CML also disclosed an increase in the number of loans approved to those buying a new home to 56,000 in July, up from 52,000 in June - although this remains significantly below long term averages.
Howard Archer, of economists Global Insight, said: “This mortgage data for July remains very low compared to long-term norms and does little to dilute suspicion that house prices will remain under pressure.
“It is also notable that mortgage approvals to first time buyers actually weakened in July, which suggests not only that they may be becoming more reluctant to move into the housing market in the current uncertain economic environment. It also suggests that first time buyers are finding it hard to get mortgages.”
Nicholas Leeming, of property website Zoopla.co.uk, said: “A crucial indicator of the health of the housing market is activity by first time buyers. The lack of attractive mortgage deals, combined with uncertainty around the economic impact of the government’s spending cuts affecting both lenders and borrowers, is seeing many frustrated first-time-buyers opt for renting in the short term.
“The mortgage market remains dominated by the cash-rich, with deposits on new homes increasing once again this month.”
High number of distress sales in Western Cape
The level of indebtedness in the Western Cape is the highest in SA and this is having an obvious and adverse impact on the property market in the province.
The latest Cape Metro FNB Property Barometer reveals that just over 15% of home sellers in the second quarter of 2010 sold because they were forced to do so by financial pressure or as a result of having their homes repossessed by a bank.
The 15,5% was some 3% higher than the number selling to upgrade their homes in the same quarter – a complete reversal from the situation in 2006 – 2007.
Clinton Martle, FNB Home Loans’ regional sales manager for the Western Cape, says the Western Cape is believed to have the highest level of indebtedness, or a debt-to-disposable income ratio of 88%. Well lower in second place in Gauteng with a ratio of 88%.
“While the 15,5% is a big improvement on the figures for all four quarters of 2009 (where financial pressure caused up to 33,5% of all sales) it is still a cause for serious concern,” said Lanice Steward, managing director of the estate agency Anne Porter Knight Frank (APKF).
“This type of seller is often so desperate that they will take an unjustifiable drop in their price to get some cash in hand. This, of course, retards the growth in prices and the recovery of the housing sector generally.”
The latest review, said Steward, also indicates that only 6% of sellers are doing so now due to a relocation within South Africa. This, she said, indicates that new jobs are few and far between at the moment, “which is exactly what we would expect in a post-recession period”.
As many as 12% of sellers, however, she said, are moving to be closer to work or amenities, including schools.
“In the Greater Cape Town area, I would guess that up to 15% of those living in the Northern Suburbs and the popular fast growing areas of the West Coast are contemplating a move of this kind so as to be closer to the city.
This is because the commuting times at peak hour traffic have become intolerable. However, the problem may be alleviated by the introduction of the Integrated Rapid Transit System in 2011.”
“The good news is that this has come about because the Western Cape’s per capita income is the second highest in the country. However, an average debt level of 101% in relation to income, i.e. a debt level of just on a total of an individual’s annual earnings, will limit borrowers’ ability to get loans from the banks – who, by and large, like to see their mortgages awarded to those with little or no debts elsewhere.”
Martle says when it comes to indebtedness, it is difficult to say for sure as to how much the Western Cape’s high level of estimated debt-to-disposable income ratio is due to its high property values. “Nevertheless, I think it must have some effect.
But it is also difficult to ascertain what level of indebtedness means trouble.”
“What we do know, however, it that during the last interest rate hiking cycle, which wasn’t extreme by our historic standards, SA’s level of indebtedness caused a high degree of pain in terms of bad debts.
With the Western Cape being on the high end of the indebtedness caused a high degree of pain in terms of bad debts. With the Western Cape being on the high end of the indebtedness spectrum, therefore, one can’t help but feel that we are vulnerable to nasty surprises such as interest rate hikes and economic downturns,” he said.
Many leaders in the property sector, said Steward, have been campaigning for an easing of the National Credit Act (NCA) criteria. She, however, does not go along with them.
“If well applied, the Act does protect the purchaser in the long term. What really needs to be looked at are the onerous lending criteria applied to self-employed buyers. Although many have been forced into becoming self-employed they have become very successful and are entrepreneurial – exactly the type that South Africa needs right now.”
In most cases, added Steward, the FNB Property Barometer shows that the higher the earnings, the larger the debt incurred. People earning above R750k per annum, she said, have an average debt in relation to income of 156% - over 50% higher than the average for the Western Cape. Under the NCA rules, this makes it very hard for them to qualify for a bond of the size they would probably feel necessary.
Martle concluded by saying that “if you are not on the housing ladder, now may be a good opportunity to get on”. “However, I continue to urge people to buy well-within their means, bearing in mind that interest rates ultimately do rise, not to mention huge electricity and possibly other utilities tariff hikes to come.” – Eugene Brink
The latest Cape Metro FNB Property Barometer reveals that just over 15% of home sellers in the second quarter of 2010 sold because they were forced to do so by financial pressure or as a result of having their homes repossessed by a bank.
The 15,5% was some 3% higher than the number selling to upgrade their homes in the same quarter – a complete reversal from the situation in 2006 – 2007.
Clinton Martle, FNB Home Loans’ regional sales manager for the Western Cape, says the Western Cape is believed to have the highest level of indebtedness, or a debt-to-disposable income ratio of 88%. Well lower in second place in Gauteng with a ratio of 88%.
“While the 15,5% is a big improvement on the figures for all four quarters of 2009 (where financial pressure caused up to 33,5% of all sales) it is still a cause for serious concern,” said Lanice Steward, managing director of the estate agency Anne Porter Knight Frank (APKF).
“This type of seller is often so desperate that they will take an unjustifiable drop in their price to get some cash in hand. This, of course, retards the growth in prices and the recovery of the housing sector generally.”
The latest review, said Steward, also indicates that only 6% of sellers are doing so now due to a relocation within South Africa. This, she said, indicates that new jobs are few and far between at the moment, “which is exactly what we would expect in a post-recession period”.
As many as 12% of sellers, however, she said, are moving to be closer to work or amenities, including schools.
“In the Greater Cape Town area, I would guess that up to 15% of those living in the Northern Suburbs and the popular fast growing areas of the West Coast are contemplating a move of this kind so as to be closer to the city.
This is because the commuting times at peak hour traffic have become intolerable. However, the problem may be alleviated by the introduction of the Integrated Rapid Transit System in 2011.”
“The good news is that this has come about because the Western Cape’s per capita income is the second highest in the country. However, an average debt level of 101% in relation to income, i.e. a debt level of just on a total of an individual’s annual earnings, will limit borrowers’ ability to get loans from the banks – who, by and large, like to see their mortgages awarded to those with little or no debts elsewhere.”
Martle says when it comes to indebtedness, it is difficult to say for sure as to how much the Western Cape’s high level of estimated debt-to-disposable income ratio is due to its high property values. “Nevertheless, I think it must have some effect.
But it is also difficult to ascertain what level of indebtedness means trouble.”
“What we do know, however, it that during the last interest rate hiking cycle, which wasn’t extreme by our historic standards, SA’s level of indebtedness caused a high degree of pain in terms of bad debts.
With the Western Cape being on the high end of the indebtedness caused a high degree of pain in terms of bad debts. With the Western Cape being on the high end of the indebtedness spectrum, therefore, one can’t help but feel that we are vulnerable to nasty surprises such as interest rate hikes and economic downturns,” he said.
Many leaders in the property sector, said Steward, have been campaigning for an easing of the National Credit Act (NCA) criteria. She, however, does not go along with them.
“If well applied, the Act does protect the purchaser in the long term. What really needs to be looked at are the onerous lending criteria applied to self-employed buyers. Although many have been forced into becoming self-employed they have become very successful and are entrepreneurial – exactly the type that South Africa needs right now.”
In most cases, added Steward, the FNB Property Barometer shows that the higher the earnings, the larger the debt incurred. People earning above R750k per annum, she said, have an average debt in relation to income of 156% - over 50% higher than the average for the Western Cape. Under the NCA rules, this makes it very hard for them to qualify for a bond of the size they would probably feel necessary.
Martle concluded by saying that “if you are not on the housing ladder, now may be a good opportunity to get on”. “However, I continue to urge people to buy well-within their means, bearing in mind that interest rates ultimately do rise, not to mention huge electricity and possibly other utilities tariff hikes to come.” – Eugene Brink
Buy-to-let still in the doldrums
Total property buying remained unchanged from the previous quarter, at its record low point of 7%
According to the FNB Estate Agent Survey for the 3RD quarter of 2010, buy-to-let buying expressed as a percentage of total property buying remained unchanged from the previous quarter, at its record low point of 7%
Along with this weak survey reading, agent confidence in the near term prospects for this segment of the property market deteriorated further in the quarter.
After some mildly encouraging signs a quarter ago that the fundamentals behind buy-to-let buying were starting to improve, more recently there are hints that progress has stalled। Agents pointed to a virtually unchanged average gross yield on rental properties of 8% in the 3rd quarter, which is insignificantly lower than the 7.9% of the previous quarter.
However, this comes after two preceding quarters of significant rise in average yield, and while it could be the lagged result of accelerating house price growth prior to mid-year, it would also appear that the rental market remains mediocre.
As at the final quarter of 2010, Rode's flat rental data showed a return to low positive year-onyear rental inflation, but the 1st quarter of 2010 had shown no improvement on that। CPI data, which records actual rental paid (i.e. the combination of the impact of market rentals and escalations), continues to show a declining trend in overall home rental inflation, with the July year-on-year growth rate being a weak 4.5%.
In the mean time, household sector indebtedness remains high, and 2nd quarter economic growth estimates confirm what the SARB Leading Indicator has been showing for some time, i।e. that economic growth has started to soften.
Slowing economic growth can place pressure on household disposable income growth, and thus on potential buy-to-let buying power
Some mildly positive news for the buy-to-let market has surfaced over the past quarter, however, from TPN, whose report on rental tenants has shown an improvement in the average percentage of tenants that are " in good standing" with their landlords. From 79% in the previous quarter, the percentage of total tenants on the TPN system that are in good standing regarding rental payments rose to 82% in the 2nd quarter, according to the latest TPN report.
This is further improvement in an upward trend spanning from the 1st quarter of 2009, at which time this percentage reached a lowly 71%. The improvement has arguably come largely as a result of a far lower interest rate environment since 2008, which can even assist rental tenants, who may have significant levels of debt elsewhere.
However, the improvement in the average performance of tenants has been insufficient to serve as a strong boost to the rental market to date, it would seem.
So, while capital growth on property is uninspiring to those would-be buy-to-let investors who focus more on that, yields are un-enticing for the investor focused on a rental income stream, and so the long wait for an improved buy-to-let market continues.
For the time being, though, many estate agents appear to have given up the wait in the sense that the survey shows a steady deterioration in their near term future expectations of buy-to-let buying.
In the FNB Estate Agent Survey, we ask agents for their expectations regarding the near term expectation for the buy-to-let market, i।e. do they expect strengthening (a rating of 1), weakening (a rating of -1) or unchanged demand (a rating of zero).
We combine their ratings into an index, which runs on a scale from 1 (most optimistic) to -1 (most pessimistic).
For 4 consecutive quarters, we have seen a steady decline in the FNB Buy-to-let Confidence Indicator, from a 3rd quarter 2009 revised high of 0.149 down to a 3rd quarter 2010 level of 0.014.
According to the FNB Estate Agent Survey for the 3RD quarter of 2010, buy-to-let buying expressed as a percentage of total property buying remained unchanged from the previous quarter, at its record low point of 7%
Along with this weak survey reading, agent confidence in the near term prospects for this segment of the property market deteriorated further in the quarter.
After some mildly encouraging signs a quarter ago that the fundamentals behind buy-to-let buying were starting to improve, more recently there are hints that progress has stalled। Agents pointed to a virtually unchanged average gross yield on rental properties of 8% in the 3rd quarter, which is insignificantly lower than the 7.9% of the previous quarter.
However, this comes after two preceding quarters of significant rise in average yield, and while it could be the lagged result of accelerating house price growth prior to mid-year, it would also appear that the rental market remains mediocre.
As at the final quarter of 2010, Rode's flat rental data showed a return to low positive year-onyear rental inflation, but the 1st quarter of 2010 had shown no improvement on that। CPI data, which records actual rental paid (i.e. the combination of the impact of market rentals and escalations), continues to show a declining trend in overall home rental inflation, with the July year-on-year growth rate being a weak 4.5%.
In the mean time, household sector indebtedness remains high, and 2nd quarter economic growth estimates confirm what the SARB Leading Indicator has been showing for some time, i।e. that economic growth has started to soften.
Slowing economic growth can place pressure on household disposable income growth, and thus on potential buy-to-let buying power
Some mildly positive news for the buy-to-let market has surfaced over the past quarter, however, from TPN, whose report on rental tenants has shown an improvement in the average percentage of tenants that are " in good standing" with their landlords. From 79% in the previous quarter, the percentage of total tenants on the TPN system that are in good standing regarding rental payments rose to 82% in the 2nd quarter, according to the latest TPN report.
This is further improvement in an upward trend spanning from the 1st quarter of 2009, at which time this percentage reached a lowly 71%. The improvement has arguably come largely as a result of a far lower interest rate environment since 2008, which can even assist rental tenants, who may have significant levels of debt elsewhere.
However, the improvement in the average performance of tenants has been insufficient to serve as a strong boost to the rental market to date, it would seem.
So, while capital growth on property is uninspiring to those would-be buy-to-let investors who focus more on that, yields are un-enticing for the investor focused on a rental income stream, and so the long wait for an improved buy-to-let market continues.
For the time being, though, many estate agents appear to have given up the wait in the sense that the survey shows a steady deterioration in their near term future expectations of buy-to-let buying.
In the FNB Estate Agent Survey, we ask agents for their expectations regarding the near term expectation for the buy-to-let market, i।e. do they expect strengthening (a rating of 1), weakening (a rating of -1) or unchanged demand (a rating of zero).
We combine their ratings into an index, which runs on a scale from 1 (most optimistic) to -1 (most pessimistic).
For 4 consecutive quarters, we have seen a steady decline in the FNB Buy-to-let Confidence Indicator, from a 3rd quarter 2009 revised high of 0.149 down to a 3rd quarter 2010 level of 0.014.
Don't fight the interest rate gap - Berry Everitt
Property experts are arguing against such a move।
There has been some debate again of late about whether the fixed difference between the repo rate and the prime rate of interest is too large at 3,5 percentage points, and whether government should move to shrink it, but property experts are arguing against such a move।
The difference means that with the 50 basis point decline in the repo rate this week, the prime rate will drop to 9,5%, the lowest level it has reached in almost 30 years।
"The 3,5% is the difference between what banks must pay to borrow money and what they charge consumers to borrow from them," notes Berry Everitt, CEO of the Chas Everitt International property group, "and there are many who think this margin is too big at a time when most consumers are still heavily in debt and battling to make ends meet।
"However, there are several other important factors to consider, the first being that banks have to put a percentage of every loan extended into their reserve funds, which cuts into their profits but provides a prudent hedge against bad debt।
"Banking legislation has seen this reserve requirement increased in recent years and thank goodness, because it enabled the banks to be much more accommodating towards borrowers in distress and default during the recent economic downturn than was possible in the late 1990s, for instance, when soaring interest rates resulted in thousands of people losing their homes."
What is more, he says the banks have only recently begun to show more confidence in lending again, "and that should not be discouraged in any way as it is critical to the full recovery of the property market in particular and the economy in general"।
Thirdly, Everitt says, those calling for the differential between the repo and prime rates to be cut should also consider the many, mostly elderly people whose only income is the interest on their savings।
"Their incomes have been eroded considerably by the eight interest rate decreases since December 2008 and would no doubt fall further if the banks' 3,5% margin were to be decreased।"
*Berry Everitt is the CEO of the Chas Everitt International property group.
There has been some debate again of late about whether the fixed difference between the repo rate and the prime rate of interest is too large at 3,5 percentage points, and whether government should move to shrink it, but property experts are arguing against such a move।
The difference means that with the 50 basis point decline in the repo rate this week, the prime rate will drop to 9,5%, the lowest level it has reached in almost 30 years।
"The 3,5% is the difference between what banks must pay to borrow money and what they charge consumers to borrow from them," notes Berry Everitt, CEO of the Chas Everitt International property group, "and there are many who think this margin is too big at a time when most consumers are still heavily in debt and battling to make ends meet।
"However, there are several other important factors to consider, the first being that banks have to put a percentage of every loan extended into their reserve funds, which cuts into their profits but provides a prudent hedge against bad debt।
"Banking legislation has seen this reserve requirement increased in recent years and thank goodness, because it enabled the banks to be much more accommodating towards borrowers in distress and default during the recent economic downturn than was possible in the late 1990s, for instance, when soaring interest rates resulted in thousands of people losing their homes."
What is more, he says the banks have only recently begun to show more confidence in lending again, "and that should not be discouraged in any way as it is critical to the full recovery of the property market in particular and the economy in general"।
Thirdly, Everitt says, those calling for the differential between the repo and prime rates to be cut should also consider the many, mostly elderly people whose only income is the interest on their savings।
"Their incomes have been eroded considerably by the eight interest rate decreases since December 2008 and would no doubt fall further if the banks' 3,5% margin were to be decreased।"
*Berry Everitt is the CEO of the Chas Everitt International property group.
Thursday, 9 September 2010
SARB cuts interest rates to prime 9.5%
The South African Reserve Bank's monetary policy committee cut the key repo rate by half a percentage point on Thursday.
The new repo rate is 6%, with the prime lending rate to change 9,5%
The repo rate is the rate at which the central bank lends to other banks, while the prime lending rate is the benchmark rate at which banks lend to customers. The decision to cut rates had been expected
Most economists have argued for a rate cut to boost the economy in the wake of a favourable inflation outlook, as well as slower gross domestic product growth figures and factory data.
The July rate of change in the consumer price index (CPI) came in at 3.7% from 4.2% in June. On Wednesday, Statistics SA reported annual manufacturing production growth of 7.5%, well down on June's growth rate of 9.3%.
Bank governor Gill Marcus said the MPC views the decision to be consistent with the continued attainment of the inflation target, having given due regard to the risks in the outlook."The scope for further downward movement is seen to be limited, but this will be assessed on an ongoing basis. Our approach remains forward-looking and is informed by close examination of the data and future developments," she said.
Reacting to the MPC's decision, chairperson of the National Consumer Forum said: "I think this is something consumers are going to welcome as they've also recently had a drop in the price of petrol. They should use this opportunity to pay off their debts."
Efficient Financial Holdings economist Freddie Mitchell said: "The cut was not surprising at all given the data out of the second quarter. Like the Governor said, the scope for interest rate cuts is getting narrower, I don't thing we'll see another cut this year."
The new repo rate is 6%, with the prime lending rate to change 9,5%
The repo rate is the rate at which the central bank lends to other banks, while the prime lending rate is the benchmark rate at which banks lend to customers. The decision to cut rates had been expected
Most economists have argued for a rate cut to boost the economy in the wake of a favourable inflation outlook, as well as slower gross domestic product growth figures and factory data.
The July rate of change in the consumer price index (CPI) came in at 3.7% from 4.2% in June. On Wednesday, Statistics SA reported annual manufacturing production growth of 7.5%, well down on June's growth rate of 9.3%.
Bank governor Gill Marcus said the MPC views the decision to be consistent with the continued attainment of the inflation target, having given due regard to the risks in the outlook."The scope for further downward movement is seen to be limited, but this will be assessed on an ongoing basis. Our approach remains forward-looking and is informed by close examination of the data and future developments," she said.
Reacting to the MPC's decision, chairperson of the National Consumer Forum said: "I think this is something consumers are going to welcome as they've also recently had a drop in the price of petrol. They should use this opportunity to pay off their debts."
Efficient Financial Holdings economist Freddie Mitchell said: "The cut was not surprising at all given the data out of the second quarter. Like the Governor said, the scope for interest rate cuts is getting narrower, I don't thing we'll see another cut this year."
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