SA's biggest home loan lender,ABSA, is positive about growth prospects in the residential property market over the next five years. As was previously indicated, the bank was expecting annual nominal house price growth of 8%- 14,5% over the next few years, House-price inflation is faster than a year ago in roughly half of the 20 countries tracked
SA's biggest home loan lender,ABSA, is positive about growth prospects in the residential property market over the next five years.
As was previously indicated, the bank was expecting annual nominal house price growth of 8%- 14,5% over the next few years, according to the bank's senior economist, Jacques du Toit,. He further expressed the opinion that house price increases may slow down to around 8% during next year.
Standard Bank's released figures show a 6 per cent year-on-year growth for August – the lowest since December 2002. On a month-on-month basis, house prices declined by 0,1% in real terms in July this year (+0,2% in June). This was the first real month-on-month price decline since April 2002 when it was -0,5%.
At least some of the expected increase in property prices towards 2010 discount the soccer world cup, With many of the fears around the possibility of South Africa not hosting the world cup, seemingly put to rest.
Rentals
Rental yields have dropped as a result of an abundance of buy-to-let properties coming onto the market This has been the result of recent heavy investment in 1- 2- and 3 bedroomed units in security complex developments.
Mathieu Lagarde wrote in an article listed in "Something is wrong, really wrong, when real estate is not buy for cash flow but for quick price increase you know you have a bubble that will burst sooner or latter - see article (http://usmarket.seekingalpha.com/article/16598)
Comparing world-wide trends (The Economist)
The following extracts from The Economist puts SA residential market in perspective:
"House-price inflation is faster than a year ago in roughly half of the 20 countries we track... Apart from America, only Spain, Hong Kong and South Africa have seen big slowdowns. In ten of the countries, prices are rising at double-digit rates, compared with only seven countries last year. European housing markets—notably Denmark, Belgium, Ireland, France and Sweden—now dominate the top of the league. Anecdotal evidence suggests that even the German market is starting to wake up after more than a decade of flat or falling prices.."
and further
it is misleading to talk about a soft landing for house prices in Britain and Australia. The market has not really landed yet: prices are still sky-high relative to incomes and rents. The ratio of house prices to rents is a sort of price/earnings ratio for property. Just as the price of a share should equal the discounted present value of future dividends, so the price of a house should reflect the future benefits of ownership, either as rental income or as rent saved by an owner-occupier.
Calculations by The Economist show that in Britain and Australia the ratios of prices to rents are respectively 55% and 70% above the long-term average (see chart). By the same gauge property is “overvalued” by 50% in America. Lower real interest rates than in the past would justify higher ratios, but nowhere near all of the rise in house prices.
An OECD study published last year adjusted the price/rent ratio for interest rates and other factors, to estimate how overvalued home prices were around the globe. Updating those figures to take account of price rises since then suggests that housing is now 35-50% overvalued in Britain and Australia and perhaps 20% too dear in America. A return to fair value will mean either rising rents or falling prices. If rents continue to rise at today's pace, many years of stagnant prices will be required to bring the price/rent ratio back to its long-term average. Especially after a giddy ascent, it is too soon to talk about a soft landing before a return to firm ground.
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