Property Prices to Achieve Modest Growth in 2011

Property Prices to Achieve Modest Growth in 2011

Residential property prices are set to achieve modest growth in 2011 in line with inflation. This is likely to be at a reduced rate than the level of growth recorded last year, however with interest rates remaining at historically low levels home buyers are being urged to take advantage of the current environment to secure a favourable home loan.

According to Rhys Dyer, Chief Operating Officer at ooba, South Africa's leading bond originator, consumers can expect nominal growth in property prices of between 4% and 5% for the year. "This is very much in line with inflation forecasts, resulting in very little real growth in property prices for the year.

"Whilst we do not expect any significant further interest rate easing, interest rates are likely to remain at their current low levels - the lowest for over three decades - inflation forecasts remain benign and real increases in wage growth are expected in 2011, which may potentially drive some improvements in disposable income levels.

Dyer says the low growth environment is being driven by low demand factors as a result of the high household debt to disposable income levels, the current economic climate and the fragile state of the labour market. "Debt to disposable income levels, although off their highs from last year, are still sitting at 78%, compared to levels of 60% in 2005. With little further impetus likely to occur in 2011 from reduced interest rates, the debt to disposable income ratio is likely to remain sticky at current levels, continuing to subdue demand.

He says, however, the next year should see a continued improvement in the key drivers of lower decline rates by lenders and a gradual improvement in consumer affordability from the ongoing low interest rate environment.

According to the latest oobarometer for November 2010, the average initial decline ratio for home loan applications fell 4.0% year-on-year to 45.9% in November, while the ratio of applications declined by one lender but approved by another showed a significant improvement, up 9.7% year-on-year to 32.9%. The effective approval ratio for home loan applications rose 7.5% to 69.2% in November 2010 from a year earlier.

"With low property price growth, low inflation, low interest rates and some real wage growth, one would expect to see a gradual improvement in consumer affordability statistics, which should help to drive a gradual improvement in bank decline rates."

He says, however, that it is unlikely that there will be any significant softening in banks credit scorecard criteria over the next 12 months.

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Employees fortunate enough to receive a bonus this December should consider putting a portion of their '13th cheques' towards paying off their home loans, before indulging in festive season spending.

Die swak huisleningsmark beperk tans die prysbewegings in die huismark.

Die swak huisleningsmark beperk tans die prysbewegings in die huismark.

Most South African consumers are unaware of their credit profile, which could put them at risk when applying for home-loan finance.

According to a recent poll conducted by ooba, South Africa's leading bond originator, three quarters of South African consumers are unaware of their credit profile. The poll revealed that 69% of respondents do not know their credit status.