SA escapes global house price crash - new stats

We are constantly reminded that we are part of one big, interconnected world and that whatever decisions are made in economic powerhouses like the US and China will affect us on our doorstep. Yet, the world's financial crisis which saw property markets crash, and continue to topple, around the world and our own recession have barely registered a blip on South Africa's house prices.

After just over a year of low property sales' volumes, staff cuts at estate agencies and mortgage originators and general financial pain in the real estate industry, most property owners emerged from 2009 with their bricks-and-mortar worth only a little less than in 2008.

Absa's house price figures, released this week, show the average price of larger houses remained steady over the year (0.3%). Small houses - anything of 220m² or less - fell by nearly 3% on average.

Those are not pleasing numbers if you are an owner hoping to sell after holding a property for a short time. But, in the global context, the declines are modest. In the long-run 2008's set-back probably won't make a difference to a property investor's return. The Absa expectation is for average house price growth in South Africa this year of 6-7%.

Looking back, South Africa's property market never crashed. It seems the bank economists who, in explaining the surge in house prices last decade, spoke of a structural readjustment after years in which property was undervalued thanks to political issues were right all along. There never was a South African house price bubble.

You only have to reflect on a country like Dubai where property prices fell by 30% and more to get an idea of the financial agony a real house price bubble can inflict when it pops.

Jacques du Toit, senior property analyst at Absa Home Loans, says of South Africa's market: "There was no bubble that burst. The market peaked in 2004 in terms of house price growth. Then, all the bad international news hit us in late 2008/2009 when the property market was already on a downward trend."

The tough conditions of recent years have been, in Du Toit's view, part of a "normal cycle" that "went deeper" than usual. There was "no major collapse" in the housing market.

Saving us from the global misfortunes to a large extent was the National Credit Act, reckons Du Toit. People found it relatively more difficult to obtain credit after June 2007 when this tough credit legislation and accompanying regulations kicked in.

There are other reasons for the relatively modest house price decline, like the fact there was no panic in South Africa's financial markets in late 2008. Some say foreign exchange controls also helped shelter South Africans from the global financial storm.

The good property news delivered to us this week by Absa highlights that South African real estate, in general, remains an attractive asset class for investment. Taking into account inflation, South African residential property was not a good store of value last year. Nevertheless, property owners were shielded from hard financial knocks.

No-one's quite sure where interest rates are heading. Some economy watchers say up, others say down. Absa is expecting a half-a-percent interest rate hike late this year. The prime rate for bank customers is 10.5%. When rates go up, property prices usually come under pressure as buyers find they get less credit from banks to fund their purchases.

Generally the impression from the bank's property experts is that the market has turned for the better. Don't expect fireworks in 2010, Du Toit tells Realestateweb, but do expect property values to tick up from here. For well-heeled international investors, a South African residential property would provide good diversification in a global portfolio of assets.

Write to jackie@realestateweb.co.za

Why is South Africa's house market in better shape than other residential property markets around the world? How did South Africa avoid a house price bubble? Is now a good time to invest in residential property? Share your views below this article.

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responses to this article

More mortgage provider spin. "Looking back, South Africa's property market never crashed. " IMHO this is the only fact you should take on board when reading this article because the crash is still coming! by Gog on January 18 2010, 12:06 Find this comment inappropriate? Report it

Stop living in denial!!! I have 17 properties on the market for the last 18 months. I dropped the prices between 35% and 39%. The properties are the cheapest in there respective areas and i have sold nothing.....SO, stop feeding the public a lot of nonsense.......the market seems . .more to me to be down more than 40%!!!! . .less by Trader on January 18 2010, 12:19 Find this comment inappropriate? Report it

Wow @Trader That is tough, I'm sorry to hear that. I think that the volume of transactions must be down 50 - 60% purely from the real fact that transfer is now happening in 4 weeks rather than 3 months. I live in Cape Town and see some areas where . .more property still continues to trade at high prices like Bantry Bay and Fresnaye, but in areas that have more property for sale such as Constantia the properties are just sitting on the market. Prices are still high in BB and F because of low supply. Let's see what happens after July when the WC has been and gone and owners are facing the loaded barrel of a rate hike. . .less by Joel on January 18 2010, 13:02 Find this comment inappropriate? Report it

Trader Trader, I'm curious - in which areas are your properties located? I've heard anecdotes that some of the Cape Town property market has been well-insulated - which goes against what I've always expected. by GP on January 18 2010, 13:04 Find this comment inappropriate? Report it

Trader, where are your properties? In one of those oversupplied new developments? Some assets aren't worth anything at any price. by Penny on January 18 2010, 13:05 Find this comment inappropriate? Report it

Volume When there's 3 years of inventory on the market specuvestors who depend on 10% capital appreciation can only hold out for so long. by Rob on January 18 2010, 13:25 Find this comment inappropriate? Report it

PROPERTY IS DOOMED FOREVER Property is doomed forever ! Do not buy property under any circumstances. It wil ruin you life forever.Property is the mother of all evils. It will never ever ever provide any capital returns, not now, not in 100 years. Rather play it safe and rent for . .more ever. Do not buy property !!!!!! . .less by Bear Essentials on January 18 2010, 13:29 Find this comment inappropriate? Report it

@ Trader not knowing where you are trying to sell l assume that you are selling fairly expensive townhouses/ clusters or commercial buildings which have been impossible to finance in the last year but lack of sales activity does not mean a price collapse. . .more properties are not shares and cannot be treated as such. maby you should stick to the stock market. you sound like one of those Cats that thought you could play the property market the same way as the "fluid" stock market and classically miss-timed it. fortunately the stock market has faired much better so i am not feeling too sorry for you. i guess you will badly time your exit from the property market due to ignorance?..... maby? . .less by Tashauna on January 18 2010, 13:29 Find this comment inappropriate? Report it

Oh lordie not good news please!!! Jackie, you can say and do whatever you want to, the bottom line is that there will unfortunately always be the doom and gloom brigade (see above) that will always dwell on the negative and will simply refuse to acknowledge good news. These . .more people tend to think short term and are normally overwhelmed by sensation and bad news. They cannot acknowledge good news because it does not fit into their negative frame of mind. They will simply be left behind in the ever changing investment cycle of the market, realise their mistake when it is too late and then desperately run after the flock and try to recoup that which they lost due to their own fear of investing. Not surprisingly, they will be the ones losing out once again, which will reaffirm their opinion that property is a bad investment. Notwithstanding the above, you must give them credit for creating the oppurtunities for shrewd investors to gain further wealth. . .less by Frikkie on January 18 2010, 13:49 Find this comment inappropriate? Report it

Gullible I trust the property analysts, its not like they've any interests in talking the market up. If these jokers had a shred of a conscience they'd stop now already! Sum people looking to find a home for their families actually listen to these clowns by Late bloomer renter on January 18 2010, 13:49 Find this comment inappropriate? Report it

Case Study One example of many stories I have heard lately - person buys property in Bothasig (Cape Town) for R620,000 in 2005. Bank strongly advises her to fix interet rate. Because of accumulated interest, owes bank R750,000 in 2009. After 12 months of trying to . .more sell, finally settles for R650,000. Still owes bank R100,000, but with no asset. Financially ruined. Yes, we really escaped the crash, didn't we? . .less by Realist on January 18 2010, 15:13 Find this comment inappropriate? Report it

a real reason is the banks will hound you until you die for any shortfalls Unliike in the Usa where you walk away and give the bank the keys, here they will get all you owe (plus interest and costs), come hell or high water. Different mindset for home-owners with that gun to their heads by dfb on January 18 2010, 15:26 Find this comment inappropriate? Report it

All depends Property performance all depends on where you were invested in the past few months. It has been rough in all areas, but some have held price better than others. But i also believe that there is light at the end of the tunnel, but i will wait post 2010 . .more glory to make a decision. Might be too late but better safe then broke. . .less by Mthoko on January 18 2010, 16:27 Find this comment inappropriate? Report it

@GP 2 in Blouberg strand - house and a flat. 1 in stellenbosch - townhouse 1 in Pezula - Knysna- townhouse 1 in Oubaai - Townhouse 2 in Kingswood(George) houses 4 townhouses in Sandton 2 Townhouses in Waterkloof Pretoria 1 . .more farm Ellisras 1 farm Rooiberg 2 Flats in Seepoint . .less by Trader on January 18 2010, 16:34 Find this comment inappropriate? Report it

Inventory exceptionally high!!!!! There is heaps of developments that has been liquidated or put on hold...excample George- Le GRande development is standing still.....the whole Garden Route!!!! Cape Town has lots, so Stellenbosch,Pretoria,Sandton,Bloemfontein,Durban. You don't . .more have to be a genius to figure it out....just approach any estate agent in any area and have a look the amount of properties on offer in a specific area of your choice! . .less by Trader on January 18 2010, 16:40 Find this comment inappropriate? Report it

Somebody deletes my response to questions!!! I'm long of property.......so i'm taking the pain.......you don't have to delete my responses!!!! by Trader on January 18 2010, 16:49 Find this comment inappropriate? Report it

property price At this price properties are not a good investment, rather invest in shares. by ben on January 18 2010, 17:17 Find this comment inappropriate? Report it

price bubble There never was a South African house price bubble. by ben on January 18 2010, 17:21 Find this comment inappropriate? Report it

Not yet Real estate bottoms can be long, drawn-out affairs with many false starts. by propxchanja on January 18 2010, 17:28 Find this comment inappropriate? Report it

@ Trader.. So these properties where bought as investments or where they speculation bets? I suspect the latter. Interested to hear what the bond repayment vs rental income is and what your shortfalls look like a month? Now if you had bought with . .more cashflow and long term investment in mind you would be sitting safe right now. I am afraid too many people got hooked on this property prices only ever go up and bought on speculation to make a quick buck. . .less by Brennan on January 18 2010, 17:53 Find this comment inappropriate? Report it

@ DFB I see that you know what you are talking about.. You hit the nail on the head. In places like the USA they have a system called a SHORT SALE whereby the bank writes off the negative equity. This fuels price drops. Here in SA the banks make you . .more sign an AOD and you pay it back. This supports property prices and forces these sellers to stick it out and push for their prices. They can then only hope for inflation to catch up whereby those prices again become affordable somewhere in the future. . .less by brennan on January 18 2010, 17:58 Find this comment inappropriate? Report it

@ Jackie good article I would like to add that we did not have the reckless lending practices like the USA and Europe. Thats the big difference and then our banks went too far to the side of caution in 2008 by req purchasers to put down 30% deposits from the previous 108% . .more offerings. In the USA they had some funny loans going on : 1. Liar Loans - whereby no proof of income was needed except for you saying what you earned. 2. NINJA loans - "no income, no job and no assets" NINJA 3. Option ARMs - or "pick a payment" adjustable rate mortgages whereby very low teaser rates for the first year are paid and then it balloons. When these loans reset thats when the Sh!t hit. These are still coming due. 4. Freddie and Fannie - What more can we say about these guys, they seem to have been forgotten but the FHA (Federal Housing Administration) are still dishing out federal assisted loans like crazy. Its key to understand why things happened and not paint silly pictures on property as an asset class because of your failure to understand it both locally and abroad. . .less by Brennan on January 18 2010, 18:13 Find this comment inappropriate? Report it

@ Realist @ Bear Essentials @ Realist: Your Bothasig example - how did the bond increase from R620k in 05 to R750k in 09? If they paid the monthly repayment (regardless of fixed interest rate or variable rate) - the capital bond amount owed decreases (or else the loan would not be . .more paid off by the end of the 20 year term). @Bear Essentials. I like your point of view - please come along and rent one of my properties from me. In 20 years time when you have paid my bond off for me - then we can talk.... . .less by Landlord on January 18 2010, 18:32 Find this comment inappropriate? Report it

Unbelievable. Literally. by Alset on January 18 2010, 19:22 Find this comment inappropriate? Report it

We had shitty loans as well.. ...there's a reason the banks suddenly stopped answering the phone when Ooba was on the line. by Rob on January 18 2010, 19:23 Find this comment inappropriate? Report it

To Landlord Easy - Add 10% interest per year. And what about transfer duty? Legal fees? by Observer on January 18 2010, 19:36 Find this comment inappropriate? Report it

Prices I am in Llandudno Cape Town; 3 sales last year all well below asking price. One asked R9m got R6m!. Camps Bay/Clifton/Bantry Bay/Fresnaye not oo bad. Camps bay prices are up 40% since 2007! All playing the "world cup phenomenon". Lastly . .more remember that properties have holding costs - rates/taxes/maintenance and the interest accrued. At current prices rent and put your cash in a tax-efficient investment account! A friend rents a R16m house in camps Bay for R25k per month! Holding cost of the property is R140k (monthly interest) R5k monthly rates = R145k. A no Brainer!! Yet properties are all investments as those knowledgeable agents like to tell us! . .less by Observer on January 18 2010, 19:41 Find this comment inappropriate? Report it

Confused I thought C.J. said prices would DROP 40%....not go up. by andrewa on January 18 2010, 21:08 Find this comment inappropriate? Report it

For the Brennan and the Landlords Trade Union Renewed my first lease this year. 6% rent increase. Whats everyone else asking? (I have two propertys where I have to replace the tenants coming up) by andrewa on January 18 2010, 21:15 Find this comment inappropriate? Report it

I say it again Look at the real price graph - it looked like the Matterhorn - not only was that a bubble, it was the biggest bubble ever. What hasn't happened is the serious fall. So, guess what, it is still to come. Real Prices must crash - give me some decent . .more inflation and I will spare you the house prices drop - no inflation and those babies must fall. Interesting to see the comments above show that those on the ground are telling a different story to the usual hype merchants. . .less by CJ Says on January 18 2010, 23:51 Find this comment inappropriate? Report it

Good old Economist Mag to the rescue http://tinyurl.com/y9bayjd real price graphs of all the major countries - the biggest peak ? Good old SA. Ah, but we were undervalued, say the hypesters. OK, try this. The long term real graph shows that by early 2003 we were . .more back to norm prices after being undervalued - so set the graph to start at Q1 2003 - Oh dear - we still shoot up much higher than all the other countries, and we are no where near to returning back to the 2003 number (it was the long term norm remember) - so like I say, its down down down for the real price for the foreseeable future. Looking at the graph it is telling us to expect a 50% real price drop coming up. Don't believe me, look at the graph. It is screaming this information at us. I can tell you one thing that's guaranteed - you can't have a huge peak like that, that hasn't fallen properly, and then start talking about the downturn being over. . .less by CJ Says on January 19 2010, 00:40 Find this comment inappropriate? Report it

The non.official version I spoke to a private banker yesterday. I was quite frankly taken aback at the horror stories they shared with me. Forced sellers and auctions.. Properties going at huge discounts, if you care to look for them. In the aggregate, looking at . .more Standard Bank, FNB and ABSA, Ooba numbers, yip, it may well be that our housing market did not dip as much as some other markets, but without a healthy correction, just how healthy is the patient really? Unless you are trading in body parts, or steeling coffins, where do you think this market is going? The central truth is that the SA household is truly strained and the SA economy deeply distorted. The longer term future for household spending power is miserable. New NCA has changed the game for the buy to let, the buy to subdivide, the buy to develop market also. Banks now are not able to recognise your projected future rental or unlocking of value projections. They lend only on existing, secured cash flow. For the family man it is now a question of having to finance such investment off your own balance sheet, and once you have secured rental income, then only you can leverage your investment to do the next purchase. The hurdle to becoming a property tycoon has been raised very substantially in SA. I do not see speculative investment demand coming back as long as we have the NCA. . .less by Jack on January 19 2010, 08:46 Find this comment inappropriate? Report it

@ cj says keep renting bud, and wait for the price crash. In the mean time, dont forget to increase your debit order 10% p/a for any of my rentals, and thanks for paying by bond off. Your arguments and predicitons are getting a bit stale now, I have been . .more waiting for your crash for years, so that i can increase my portfolio- when is it comming? will you then finally become a home owner, or are you waiting to have your rent reduced ?? In my experience you get two types of people-Tenants and Landlords I would rather get rent in, than pay it, or am i missing the point. have a great day! and please look after my investments and keep that rent comming in. . .less by dfb on January 19 2010, 09:08 Find this comment inappropriate? Report it

Data Analysis Re the bubble. Average value per sold property has seen little depreciation. So yes, a price bubble did not really exist. A real-estate SALES bubble however, did exist. And it POPPED! The data shows an average decline of 41% in volume of full-title . .more transactions and a corresponding decline in the total Rand value of this segment. Nationally sectional-title declined by 44% with a 42,7% decline in total rand value year-on-year. . .less by DD on January 19 2010, 09:43 Find this comment inappropriate? Report it

Gog is right the real pain is still on its way as peoples reserves and access bonds come to an end. Last year was tough, this is the year of reconing by bb on January 19 2010, 10:06 Find this comment inappropriate? Report it

OK dfb You are the property genius - you have no doubt checked the Economist link and seen the bubble graph - what do you think is happening ? As long as the interest needed to buy a house is 3 times as much as the rent of the house, it makes sense to . .more rent. If you are happy to pay all that interest for me so that I can have subsidised housing, I am really not complaining. . .less by CJ Says on January 19 2010, 10:16 Find this comment inappropriate? Report it

@DD What do you think that huge mountain of a real price graph is, on the Economist site, if not a bubble ? by CJ Says on January 19 2010, 10:19 Find this comment inappropriate? Report it

The botom of the market will be reached when rentals in JHB's northen suburb flat lands e.g. Fourways/Northgate exceed the bond repayments and levies/rates AND the surplus after all expenses exceeds the return that the banks will pay you on your deposit : 1999-2001. by Property baron on January 19 2010, 10:31 Find this comment inappropriate? Report it

@CJ and other potholes I was soooo hoping the charcter called "CJ" would not return to the site together with his eternal doom and gloom predictions following the Christmas holiday. But hey, I guess life is not perfect and one has to bare with these types like you . .more have to bare with your in laws and potholes on the N1. . .less by Gorgonzola on January 19 2010, 10:35 Find this comment inappropriate? Report it

Rent vs Buy If you have cash, it is better to rent but ensure you invest the surplus (savings) in inflation linked stocks such as Shoprite (food inflation is higher than most other commodities). Shoprite's share price is up 10 fold since 2003 whereas residential . .more property is up 3 fold. Premium (listed property) is also up 10 times over this period. Private hospitals' (own productive properties) growth also exceeds residential property growth. A house which I sold in 2009 in Jhb's northen suburbs was up 5x from the price I paid in 1999 (bottom of the property market) but my Netcare shares which I bought at the same time were up 26 times (after a stock market correction). . .less by Property Baron on January 19 2010, 10:48 Find this comment inappropriate? Report it

negative attitudes I sold 40 properties last year- amost all of them above R2m. People will always need to buy and sell. Asking prices may have dropped but that means nothing esp in area like Llandudno where they only sell 10 houses a year. Compare selling prices and the . .more drop has been small compared to anywhere else @trader with such a negative attitude it will be impossible to sell- I hear the coffin sales industry are looking for reps. Stop blaming external influences for internal failures. @Bear Essentials- Sjoe! What is it like being poor? how many rich people do you know that dont own any property. Did your landlord give you that staggeringly sage advice? . .less by Shift Happens on January 19 2010, 10:58 Find this comment inappropriate? Report it

Property I am amused and astounded by the impending death brigade predicting the collapse of property, this notwithstanding overwhelming signs of improvement in the global economy.Time will tell who are correct. Hope for their part it's them, how hilarious would . .more it be if they waited for the collapse...... and nothing happened !!!! :-) . .less by Frikkie on January 19 2010, 11:01 Find this comment inappropriate? Report it

Welcome back CJ Nice to have you back on the site to offer your opinions and bring some rational thought to the property debate. by rob on January 19 2010, 11:29 Find this comment inappropriate? Report it

no collapse simply no buyers by ea on January 19 2010, 12:17 Find this comment inappropriate? Report it

@Shift Happens I'm not negative you idiot.......i'm questioning the stats.....wake up smous!!! by Trader on January 19 2010, 12:19 Find this comment inappropriate? Report it

Death and property Jislaaik, the year has just started and already the pessimists are out and about and looking for the half empty glasses. It's gonna be a long year.... by Frikkie on January 19 2010, 12:23 Find this comment inappropriate? Report it

Go away CJ . by Benny on January 19 2010, 12:24 Find this comment inappropriate? Report it

The situation in the USA is quite different to that in the RSA! I have no idea whether prices will go up or down, whether this is the start of a boom or a bust, but previous posters are correct in pointing out that there are significant differences between the USA and the RSA as far as porperty is concerned. In the . .more USA, you can walk away from your house and hand the problem to the bank. To my way of thinking, this encourages a degree of recklessness not seen elswhere, especially in SA, where home ownership has tended to be more about security and stability, rather than investment returns. This trend is of course changing and now that increasing numbers of people view property ownership as a source of income, I wonder whether we won't see more volatility in property prices in coming years? What do others think? . .less by Lobster on January 19 2010, 12:29 Find this comment inappropriate? Report it

Demand In certain overtraded areas demand is non existent. I will construe that as a crash. Property developers are certainly crashing. by J on January 19 2010, 13:15 Find this comment inappropriate? Report it

CJ says I don't agree with you, but I like to hear your views. I'm convinced you are playing Devil's Advocate. You own property right? If not, you should use your market knowledge about averages etc to look for gems amid all those overpriced pads you say we have. . .more C'mon CJ, buy a property. . .less by Moneygirl on January 19 2010, 14:29 Find this comment inappropriate? Report it

@andrewa 15%. Have just signed up a new tennant in a unit at a 15% increase on last years rent; studio @ R3500 in 2009, R4000 for 2010. One ad, 60 plus enquiries - actually lost count - a dozen odd applications and tennant screened, double deposit plus . .more first months rent paid upfront. All tied up with within 3 days. . .less by CT Landlord on January 19 2010, 18:40 Find this comment inappropriate? Report it

@ C.J. Says welcome back from holiday C.J.! I dont know what you did but I spent some of my time at the local Salvation Army home tarting the place up (painting, welding, plumbing etc.....I've had lots of practice at Zen and the art of Home maintenance after . .more all) In conversation with the residents the renters outnumber those who owned property by about 9 to 1. I know its only empirical data and does not have the scientific provable numbers of your charts but I do think it proves something. N.B. No one at the SA had ever invested in shares interestingly enough. . .less by andrewa on January 19 2010, 22:36 Find this comment inappropriate? Report it

@ CT Landlord Glad to hear it! My 6% was from an excellent tenant (not one day late with the rent the whole of last year and the inspection showed no damage to the property). In situations like this it makes excellent sense to go for a small increase as you do not . .more have to tart the place up and lose a months rent while you seek a new tenant. Also you dont want a good tenant like that to move to another landlords property (the ones I want to move you really dont want to rent to) . .less by andrewa on January 19 2010, 22:41 Find this comment inappropriate? Report it

above article i sold a tokai property in 1983 for R125,000. it is currently worth R2.2m. wow you say thats fantastic. nonesense. had i taken that R125,000 and invested in a sydney property of A$125,000 (which i did in 1986) that property would be worth A$1m or . .more R7million. hmm makes you wonder. property by its very nature is a long term investment which is only correctly valued when it is sold. so people have this figure in mind of howmuch their property is worth yet it can only be tested in a real situation. shares on the other hand are constantly valued. sure have your own home - but property as investment - forget it unless you can get some tax advan . .less by robert in sydney on January 25 2010, 03:55 Find this comment inappropriate? Report it

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