Many people, says Bill Rawson, Chairman of the Rawson Property Group, apparently believe that the latest predictions from Absa (and others) that consumer price inflation in South Africa is likely now to run above 6% for the rest of the year is bad news for the residential property market, but, he says, this is not the case.
“Our experience over 30 years has shown that, as is happening right now, year-on-year house price increases very seldom fall below the current inflation rate and are quite often 1% or 2% ahead of it. The Absa report reveals that, in the first quarter of 2014, the bulk of the market, i.e. the middle segment, saw year-on-year price growth of 6,4%, which was 0,6% above the inflation rate for that period. The small (affordable) house market saw rises of 4,9% (0,9% below inflation), while large houses had a 7,6% growth rate (1,6% ahead of inflation).”
What is encouraging, said Rawson, is that the latest price performances still represent a very significant upturn (in the region of 15%) from the low point of 2012 and, although there has been a very slight dip recently, it is unlikely to be excessive or long lasting.
“Price growth over the next half year will, I think, remain more or less in line with inflation and in some areas quite possibly ahead of it.”
Also encouraging news, said Rawson, is that the cost of building new homes has come down very substantially in the last nine months – by Absa’s estimate by 5%. This indicates that, faced with tough competition for a limited quantity of work, contractors have sharpened their pencils, but it will take at least another year for the cost of new homes to be even roughly comparable with those of secondhand homes.
What is of concern, said Rawson, is that coastal region house price growth has been far slower than that of inland housing and, in fact, reflects a drop of some 12% since the middle of 2013. However, he pointed out, in many areas these home prices did come off a fairly high base.
In his view, he added, the current high inflation rate is not, as in the past, due to reckless spending by the general public – the provisions of the National Credit Act have now prevented that.
“The Absa review shows that the ratio of personal debt to GDP has improved slightly, but consumers are suffering severely from higher fuel, electricity, food and property price assessment rates – and inflation has been further boosted by what many consider to be over generous wage increases for those in the civil service.”
Asked if he expected the 1,5% increase in the interest rates, which many people believe will come about before the end of this year, will slow down residential sales, Rawson said that if such rises in the rates come about (“which,” he said “is by no means a certainty as many economists are against this move”), the increases are bound to have an effect, however these days a far wider cross-section of the pubic are aware of the criteria on which banks apply to the awarding of home loans and are more adept at meeting the requirements and more determined to do so. This, said Rawson, probably means that the majority of those who had planned to buy a home will still find a way of doing so, possibly by saving to increase their deposits or, as he himself has recommended in the past, by scaling down their ambitions.
