House price growth to reach 9% in 2014

Denise Mhlanga – Property journalist at property24.com

According to FNB Home Loans household and property sector strategist John Loos and property market analyst Theo Swanepoel on residential property “in line with an improving demand-supply balance, we approach 2014 with accelerating house price growth when viewed on a monthly basis”.

“So, whereas the average price growth for 2013 was slower than that of 2012, that was due to growth earlier in 2013 being slower, whereas in the latter parts it was once again picking up speed, reaching 8.7 percent year-on-year (y/y) in December.”

As a result, they explain that despite a slowed economy in 2013, other factors, most notably some possibly more relaxed lending by banks and supply constraints – their 2014 average house price growth forecast is 9 percent up from 6.8 percent growth in 2013.

“In 2015, we would expect price growth to once again slow, based on our forecast that interest rates could start to rise in 2015.”

Despite a weak economy that looks likely to persist, supply constraints could cause 2014 house price performance to be slightly better in our view, according to Loos and Swanepoel.

For buyers entering the market, this could be good news as banks have eased up slightly and are starting to grant loans.

Org Geldenhuys, managing director of property development and marketing company, Abacus Divisions, says in 2013, financial institutions marginally relaxed their lending criteria an ease which is expected to continue during 2014 and depending on how the new credit amnesty bill impacts the market, 2014 should see a greater level of loan easing.

In 2013 the percentage of loan application approvals increased to over 51 percent up from the 26 percent seen in 2009 during the height of the global economic recession.

As a result, they explain that despite a slowed economy in 2013, other factors, most notably some possibly more relaxed lending by banks and supply constraints – their 2014 average house price growth forecast is 9 percent up from 6.8 percent growth in 2013.

“What we are also seeing on the ground is that we have more cash buyers – people and companies who have been sitting on their money during the economic recession.”

He says these individuals are now feeling more buoyant and are keen to invest some of this cash. This bullish sentiment is going to assist with the recovery in the commercial property market and the residential property market as a whole, he points out.

 Buying property

According to the latest Absa housing review, middle segment prices showed an average y/y increase of 9.3 percent in Q3 2014, with the large home sub-segment achieving an average y/y increase of 8.4 percent and much more in every region except the Free State and Limpopo.

Prices in the luxury home sector, priced from R3.8 million achieved an average y/y increase of only 7.3 percent and the differential means that there are good opportunities for the astute homeowner to “trade up”.

“The huge differential between the cost of newly-built homes and that of similar pre-owned homes is also in favour of those who aspire to own a luxury property in any one of SA’s gracious heritage suburbs.” Furthermore, the Absa report shows that it is currently as much as 37 percent more expensive to buy a newly-built home than it is to buy a similar, pre-owned home and this creates a margin for renovation and modernisation of older luxury homes without overcapitalising.

In the case of a 500 square metre pre-owned home in an upmarket suburb that costs R3.8 million, for example, one can subtract about R1.2 million for the land value, so the actual cost of the home would be R5 200 per square metre. This compares very well with the R8 000 to R12 000 per square metre that developers and builders are currently quoting for newly-built luxury homes in sought-after suburbs and estates, and gives the buyer room to spend at least another R1 000 per square metre on upgrading the property and perhaps improving the security without exceeding a market-related limit for the area.

Specifically, Durbanville has become a sought-after location and demand for homes in the area is rapidly out-stripping supply resulting in prices increasing at around 10% per annum. Never a better time than now to invest in property here!

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