Tony Clarke, the Managing Director of Rawson Properties, now one of the fastest growing real estate agencies in South Africa, has warned that with the current inflation rate at 7,9% and likely to break the 8% barrier early this year, at least one and possibly two interest rate hikes are possible with the next six months.
'The increased inflation rate (up from 3,7% on that of 18 months ago), coupled with a rapid rise in global food and energy prices and the 4% rise (in 18 months) in interest rates have resulted in South Africans seeing a big drop in their monthly disposable incomes,' said Clarke.
The general publics debt, he adds, has risen in two years from 61% to 77% of their disposable income and this trend made it essential to introduce the more stringent bank credit policies of the National Credit Act.
'The change in the economic environment has very definitely been felt in the property industry: we have experienced a considerable slow-down in the investors market and the sales of coastal property (i.e. holiday homes/secondary homes) as a result of the public being forced to cut down on spending.
'Absa reports a drop in house price growth over the last year to 9,6% - a level last seen in May 2001. There has also been a decline of approximately 20% to 30% since April last year in the number of units sold. The number of home loan defaulters is also up some 30% on a year ago.
'Taking all these factors into consideration,' says Clarke, 'it is clear that we are now looking at a year in which property will be more difficult to sell and will increase in value at a slower pace. Sellers will, therefore, have to settle for realistic market-related offers on their properties'
Looking ahead, Clarke foresees that the dampening effect of the high interest rates will be felt sooner than most people realise and should bring inflation down to a more acceptable level by mid 2008. This, he said, should lead to a stabilisation in interest rates by the second half of the year.
He predicts that the current economic cycle will last between 18 to 24 months and that the National Credit Act will continue to impact on the market, with consumers forced to adjust their spending habits to be able to afford property. 'Sellers,' he says, 'will have to accept more realistic prices, because there will be fewer buyers and their offers will be more conservative'
Clarke remains very positive about the outlook for the bigger brands in the South African property industry.
'Most of the big brands were around when the market was tough before and will be able ride out the storm as a result of their excellent training and ability to attract and retain professional agents'
