SA property decline

With the growth of property price falling flat and the high cost of debt affecting buying decisions, the South African property market has officially slumped to a significant degree.

For the last three months in South Africa, property prices have been relatively flat in a year-on-year growth comparison. One of the reasons cited for the flat market has been an increased cost of debt that held the market down. This slump is making getting a mortgage difficult, which in turn is causing more domestic citizens to rent. 

These findings were calculated and announced with the release of the most recent Standard Bank residential property gauge. The survey presented a generally sparse short term future for the residential property market.

Sizwe Nxedlana, senior economist for Standard Bank, said "This reflects that consumers are under severe strain. Affordability has been reduced by the 4% point increase in interest rates since June 2006."

Consumers in South Africa were burdened with household debt to disposal income ratio of 77.4%. The residential property market was moving in a parallel fashion with other sectors of the economy which are sensitive to interest rates such as auto sales. There was also a negative rate of growth within the retail sector.

This is troubling for the property investment market since housing prices in South Africa have continued to decline since growth peaked at the end of 2004. However, with this decline in housing sales, the rental market has slowly been building.

Ken Woollcott of Gauteng reports, "We have demand at all levels. From young couples who find it difficult to finance their own home to large corporates." Although relatively level and flat rental returns haven't exploded, there has been some definite upward movement. John Lottering of Rode Report's says, "During the last two years flat rentals grew by about 9% pa in the Durban metro and by roughly 7% pa in the Johannesburg metro. Over the same period consumer inflation was just short of 6% and, hence, only landlords in Durban and Johannesburg could achieve real rental growth."

However, an optimistic viewpoint comes from Andrew Schaeffer, representative of the Trafalgar firm, "We can expect rents to rise in steady double digits."

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