Whatshot
Property Talk
Property Talk
Date: 2019-10-11
Property Market Cycle
According to FNB's Forecast, our GDP growth is expected to average 0,3% year-on-year for 2019, this being down from 0,7% in 2018. This is such an important statistic for property professionals to watch, as, without economic growth, employment growth and disposable income do not improve.
Without people having more money, the general demand for properties cannot improve significantly. We may find marginal improvements in mortgage advances as we have experienced recently, and we may find some seasonal improvements in demand depending on where in the country you are based, but a wholesale improvement in overall demand for properties depends to a large extent on economic growth.
The greater Ballito area has experienced growth beyond the national average because of the semi-gration of people, from Gauteng mainly, to take advantage of the outstanding quality of life and amenities we have. Cape Town was the beneficiary of the bulk of this semi-gration for many years, but as prices sky-rocketed, many people started to look at better value destinations that still offered what they were looking for in terms of security and lifestyle.
With the demise of Tongaat-Hulett as the big player in the property development space in KZN, a range of upwardly mobile developers with deep pockets are quickly filling the gap. Most of these relative newcomers have the financial strength to weather the current storms and have taken long-term views on their investments along this coastline.
Our interest rates and inflation rate are at historic low levels and currently support an improvement in the property market cycle.
The FNB House Price Index improved marginally to 3,8% year-on-year in September, from 3,7% in August. Quarterly the third quarter averaged 3,7% which is up from 3,4% in the second quarter of 2019. Improvements in average prices are good signs of improving demand and tend to indicate that further improvements are likely.
We have seen that the lower end of the market has performed better than the higher end with the latter offering outstanding buying opportunities for discerning investors. Banks are proving more mortgage lending according to the SARB data, which shows growth of 4,9% year-on-year in August - the highest growth since November 2010.
When mortgage advances outpace the average house price growth, this boost transaction volumes and according to FNB this is most notable in the R700,000 to R3,5m price bracket. The loan to price ratios for mortgage advances has increased strongly over the past two years reaching 90,6% in 2nd quarter 2019 up from 88% in the 2nd quarter of 2017.
What is interesting about this, is that it is the highest average loan to price ratio in over a decade indicating that the banks are more willing now to finance a larger portion of the purchase price. Interestingly enough most of the growth of the loan to price ratio has been in the higher price bands.
The overall property market outlook is expecting a slow steady improvement supported by low and steady interest rates and improved lending. If we have positive political and economic news then some acceleration can be expected.