Lew Geffen has been in the real estate industry since 1972, is recognised as one of the leading experts in property in South Africa and holds many directorships in associated real estate and allied industries.
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Positivity in the Property Market
Author: Lew Geffen Sotheby's International Realty | Published: September 9th, 2011
Chairman: Lew Geffen of Lew Geffen Sotheby’s International Realty
Spring has sprung. After having survived a long and bitter winter, we can all start thinking about the future again. There’s certainly much to be positive about in the property market, where most of the lights are already changing from red to green.
Positive Change In The Property Market
First among the positive signs is that despite all the problems with debt in Europe and the US, the World Bank expects the global economy to grow by 4,3% this year and 4,5% in 2012. This is a whole lot better than the 0,5 percent achieved in 2009, the year of the international financial crisis.
As for our own economy, it is benefiting from rising commodity prices and the global rebound and is expected to grow by between 3,5% and 3,9% this year. It’s also expected to increase by at least 4,1% next year, having shown steady progress since 2009 when it suffered a 2% decline.
SA Households Start To Benefit Again
Secondly, the financial position of SA households is improving and their ability to buy property and their appetite to do so is increasing; and it’s not just me that thinks so.
Real growth in household disposable income was an annualised 5,4% in the first quarter of this year (up from 5% in the fourth quarter of 2010), while the debt-to-income ratio dropped to below 77%, it’s lowest level in many years.
In addition, although about 46% of credit-active consumers are still struggling with impaired credit records and a limited ability to obtain new credit, the number of people with good credit records rose to 9,97m in the first quarter of 2011, up from a low of 9,73m in the second quarter of 2010.
Homes Become More Affordble
The third green light for the market is that homes are much more affordable now. The ratio of mortgage debt to household disposable income is now only about 4,1% - the lowest it has been since mid-2006. This is due partly to income increases but mostly to the fact that monthly mortgage repayments are currently 33,5% lower than before interest-rate cutting began in December 2008.
What’s more, First National Bank calculates that the average house price in real terms is still more than 15% below the highest point reached in 2008.
As for the fears about interest rate increases, we should remember that when the last property boom kicked off at the end of 2003, the home loan interest rate was 11,5%, and at the height of the boom in 2007, the rate was 14,5%. Now expectations are that when rates start rising again from the current 9%, they will not go beyond 11%, so I don’t think there is much to worry about on that score.
Sales volumes in the existing homes sector are clearly picking up now as the awareness grows that this is an exceptionally opportune time to purchase property, and the banks become more willing to lend.
And, we are happy to note, it is the upmarket sector that is leading the way and now even starting to experience some price gains. The latest Absa figures show that the average price of large homes rose 1,2% year-on-year in the second quarter and that of luxury homes by 2,5%.
Personally, I think the road to full market recovery is already clearly marked and that it won’t be long before it is pretty heavily trafficked.
Spring has sprung. After having survived a long and bitter winter, we can all start thinking about the future again. There’s certainly much to be positive about in the property market, where most of the lights are already changing from red to green.
Positive Change In The Property Market
First among the positive signs is that despite all the problems with debt in Europe and the US, the World Bank expects the global economy to grow by 4,3% this year and 4,5% in 2012. This is a whole lot better than the 0,5 percent achieved in 2009, the year of the international financial crisis.
As for our own economy, it is benefiting from rising commodity prices and the global rebound and is expected to grow by between 3,5% and 3,9% this year. It’s also expected to increase by at least 4,1% next year, having shown steady progress since 2009 when it suffered a 2% decline.
SA Households Start To Benefit Again
Secondly, the financial position of SA households is improving and their ability to buy property and their appetite to do so is increasing; and it’s not just me that thinks so.
Real growth in household disposable income was an annualised 5,4% in the first quarter of this year (up from 5% in the fourth quarter of 2010), while the debt-to-income ratio dropped to below 77%, it’s lowest level in many years.
In addition, although about 46% of credit-active consumers are still struggling with impaired credit records and a limited ability to obtain new credit, the number of people with good credit records rose to 9,97m in the first quarter of 2011, up from a low of 9,73m in the second quarter of 2010.
Homes Become More Affordble
The third green light for the market is that homes are much more affordable now. The ratio of mortgage debt to household disposable income is now only about 4,1% - the lowest it has been since mid-2006. This is due partly to income increases but mostly to the fact that monthly mortgage repayments are currently 33,5% lower than before interest-rate cutting began in December 2008.
What’s more, First National Bank calculates that the average house price in real terms is still more than 15% below the highest point reached in 2008.
As for the fears about interest rate increases, we should remember that when the last property boom kicked off at the end of 2003, the home loan interest rate was 11,5%, and at the height of the boom in 2007, the rate was 14,5%. Now expectations are that when rates start rising again from the current 9%, they will not go beyond 11%, so I don’t think there is much to worry about on that score.
Sales volumes in the existing homes sector are clearly picking up now as the awareness grows that this is an exceptionally opportune time to purchase property, and the banks become more willing to lend.
And, we are happy to note, it is the upmarket sector that is leading the way and now even starting to experience some price gains. The latest Absa figures show that the average price of large homes rose 1,2% year-on-year in the second quarter and that of luxury homes by 2,5%.
Personally, I think the road to full market recovery is already clearly marked and that it won’t be long before it is pretty heavily trafficked.
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