How’s the property market doing? Well it
depends, are you a buyer or a seller?
For buyers as a whole the past year has been spectacular. The term
“buyers market” refers to the relative advantage buyers enjoy when the overall
market has many sellers but fewer buyers, providing choice and the opportunity
to negotiate keen pricing. November is typically a high property sales month
within the industry, and on a national basis, Seeff recorded its highest sales
in four years for the month of November. Summer also has a seasonal impact on
sales, and we have found that the first quarter is a typically an active time. Within
some price categories the advantage is starting to tip back towards sellers and
this makes for a healthy property market.
As we end off 2012 it is important to
review the key economic drivers of the property market to be able to get a
sense of where the market could be heading over the next six months. At the top
of our list is the cost and availability of mortgage finance. The prime lending
rate remains at 8,5%, the lowest level in 39 years. You have to go back as far
as between 15 Nov 1973 and 1 Feb 1974 to find the prime lending rate at 8%.
Even though rate concessions have become harder to achieve, with most mortgage
advances being finalized at the prime rate or above, the price of money is not
a limiting factor on the demand for property.
Inflation as measured by the
Consumer Price Index (CPI) is currently 5,6% meaning that you have a real
interest rate of around 2,9%. Producer price inflation as measured by the
Producer Price Index (PPI) is currently dramatically down to 4,2% from a recent
peak of 10.6% in October 2011, and with this rate below the CPI we can expect
inflation to moderate further.
The availability of finance is a different
story. Although credit growth to South African households as a whole has
accelerated recently, this has been on non-mortgage credit components. Growth in
overall mortgage finance extension has been slow and tends to follow the
business cycle very closely. The South African Reserve Bank leading business
cycle index currently indicates flat growth. Ooba, South Africa’s largest
mortgage originator, has reported a big jump in approved home loans (up 30% in
November 2012 and up 47% in October 2012 on the year earlier). For the 11-month
period January to November 2012, Ooba’s home loan approvals were reported up by
147% over 2009 and 42% on 2011. This is good news on the availability side, and
also indicates Ooba’s relative market share growth within the industry. Ooba’s
average initial decline ratio (i.e. the first bank decline) is currently 46%.
However the percentage of applications declined by one bank but approved by
another is 24.4%, taking the effective approval ratio, once Ooba have submitted
to all the other banks, to 65.2%. It pays to shop around, especially when
considering mortgage finance.
If you are
a cash buyer you stand a great chance to negotiate a good deal on a property
purchase. The next best thing is to get pre-approval for mortgage finance. FNB
are offering their innovative “passport to purchase” pre-approval service for
buyers and a free detailed bank valuation service to Seeff sole mandate
sellers. These are excellent tools currently available for both buyers and
sellers.
From Seeff Dolphin Coast we wish our readers, clients, service providers and friends a blessed Christmas and healthy 2013.
(Author: Andreas Wassenaar, 19 December 2012, published in The Bugle)
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