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Housing prices set to go through the roo... New policies sold will not hurt share al... Old books can be a licence to print mone... Watch those newly listed shares carefull... Playing a volatile stock market is somet... New peace of mind plan for used-car buye... |
Housing prices set to go through the roof
Election worries, however, are the blight on a brighter outlook for property, writes LEIGH ROBERTS
But there are a few niggling concerns that could stall the fun - a troubled general election is one. The average price of homes rose sharply in the first three months of this year, a move hailed by property experts as the long-awaited turning point for a sluggish market. The Absa group's Quarterly Housing Review, released this week, shows the average price of a house jumped by nearly 14% in the year to March. In real terms, that's after deducting the price distortion of inflation, the rise was 7.8% over the year. The gain in real house prices is significant. It represents the highest real growth in home prices since 1984.
Christo Luus, economist at Absa, attributes the improved state of the market to positive economic developments. Consumer inflation is falling and is now below 6%, and the nominal mortgage bond rate has come down, which makes home ownership more affordable. The average real wage level has risen, and property buying by a growing middle-class has boosted sales. Property prices should rise further in the months ahead as these positive factors continue to bolster the market. Luus sees inflation averaging at 6.3% for 1998, and the base mortgage bond rate falling from its current 18% to around 17% or 16% by the end of the year. Sadly for borrowers, Luus is not expecting any further interest rate cuts next year. The demutualisation of assurance giants Sanlam and Old Mutual is also expected to excite demand in the market as cash-flush policyholders use their windfall gains for deposits on new or better homes. But there are some negative influences on the residential property market, too. High real interest rates are a problem, as is the high debt holding of the average family (at 70% of income). The net emigration trend weakens the market as it increases the supply of houses for sale. Luus's view is that the positive economic factors far outweigh the negatives. Property prices, however, are particularly susceptible to public sentiment. And looming on the horizon is the general election in April next year. A troubled election has the potential to blight the rosy outlook for residential property. When political trouble brews, buyers retreat, the demand for property withers, and sellers are forced to accept lower prices for their wares. The effect of political strife on prices can be clearly seen in KwaZulu-Natal (KZN). The accompanying table - which shows the annual and quarterly nominal house price rises in the region - reflects that KZN, excluding the Durban metropolitan area, recorded the lowest price rise in the country. This can be related to the violence in the region. But not all property experts are fearing the election. Luus's view is the poll will not have a major effect on the market. Potential blights aside, homeowners can rejoice at the long-awaited turn in the market. The two accompanying graphs highlight just how poor the market has been. The first shows the extent of the loss in house value in real terms - the average house is worth 16% less than it was 10 years ago. Bad news if you're a property owner, but great news if you're a property buyer! New buyers, however, will be hit hard by the high financing cost of using borrowed money to buy their homes. Today, it is considerably more expensive, in real terms, to buy a house with mortgage finance than it was 10 years ago. Real lending rates are cripplingly high. And disturbingly, in the past three months the real mortgage rate rose even higher as interest rate cuts failed to match the fall in inflation. The second graph highlights another off-putting fact. The average house price has not kept pace with inflation over the past 20 years. The average home may have risen in price in nominal terms, but after accounting for inflation, you have lost money year after year. Of course, the graphs and the table are based on average figures for the whole market. The value of an individual home also depends on factors such as the suburb, the security features it offers, and any capital additions. New property buyers will have to make a weighty decision: to buy now before the property market moves into boom territory, or to wait until after the general election. Top of page
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