WORST PRICE FALLS IN 23 YEARS

Realestateweb reporter
08 June 2009

More ugly house price data - and that's after home loan rates have been slashed 4,5% since December. New Absa stats.

SA Reserve Bank Governor Tito Mboweni's dramatic slashing of interest rates over the past six months has failed to halt the trend of falling residential property prices. And there's no good property price news expected from the bank this year.
More ugly house price data has been released this week, showing the biggest year-on-year fall in residential prices in 23 years.
Absa's House Price Index up to May 2009 shows "nominal house prices in the middle segment of the market declined by 3,6% year-on-year in May, which was the biggest price drop since late 1986".
Jacques du Toit, Absa's sectoral analyst of secured lending for Absa Retail Bank, predicts that house prices are set to decline by a nominal 3%-4% in 2009.
Absa's figures suggest your home is now worth what it was in early 2007 and put the average house as priced at about R930 000.
You can place the blame for the erosion in market value of your home largely on the recession - the first since 1992 and which has made banks nervous about granting credit to home loan applicants.
In his note, Du Toit said: "Nominal year-on-year house price deflation, which commenced in December 2008, continued in May this year, while in real terms prices are declining on a year-on-year basis since January 2008."
The Absa break-down of house prices in terms of home sizes shows:
* The average nominal price of middle-segment housing was down by 3,6% year-on-year (y/y) to R932 000 in May 2009, after declining by a revised 3,2% y/y in April. The May price decline was the biggest since September 1986, when it was also -3,6% y/y. On a month-on-month basis, nominal house prices were 0,5% lower in May compared with April. These trends contributed to nominal house prices in the middle segment to be R35 300 lower in May 2009, after peaking at R967 300 in May last year."
Du Toit said middle-segment house prices were down by a real 10,7% y/y in April, after declining by a revised 10,2% y/y in March. "This was the biggest real year-on-year price
decline since September 1992," he said, noting that real house price calculations are based on the consumer price index (CPI) for all urban areas, available from January 2008, as
published by Statistics South Africa and used by the South African Reserve Bank
for monetary policy purposes.
Before this date the calculations are based on the historical CPI for metropolitan areas, linked to the CPI for all urban areas, he said.
* In the category for small houses (80m²-140m²), the average nominal price dropped by 4,0% y/y in May this year, after a revised -3,2% y/y was recorded in April. "This brought the average price of houses in this segment to about R658 200. In real
terms prices dropped by 10,7% y/y in April (-10,0% y/y in March)," said du Toit. The average nominal price of medium-sized houses (141m²-220m²) declined by 2,0% y/y in May 2009 (-2,0% y/y in April), which brought the average price in this
category of housing to around R930 000. The average price of medium-sized houses was down by a real 9,6% y/y in April this year.
Nominal year-on-year house price deflation, which commenced in December 2008, continued in May this year, while in real terms prices are declining on a year-on-year basis since January 2008, said the top property analyst.
* The average nominal price of large houses (221m²-400m²) declined by 3,5% y/y to around R1 344 400 in May this year, after declining by a revised 3,6% y/y in April. This caused the average price of a large house to be R53 200 below the peak of R1 397 600 reached in March last year. Prices of large houses were down by a real 11,0% y/y in April this year, after declining by 10,9% y/y in March.

BANK BASHING: WHY IT'S NECESSARY

Realestateweb
05 June 2009
Analysis of latest property buyer experiences with banks, what South African Reserve bank really thinks of nation's bank executives.
This article, first published in Pam Golding Properties' Intellectual Property magazine under the headline "Interest rates and mortgages", sums up the South African credit situation for property investors.
Bashing the banks is a popular pastime almost everywhere. Here in South Africa, however, the clamour is growing and the High Street bankers are taking stick for making too much money, not lending enough money - and being in cahoots, to the detriment of their customers, particularly the man in the street.Even the arch-conservative Reserve Bank Governor, Tito Mboweni, has taken the banks to task, asking why their margin between the repo rate (the rate the commercial banks pay to borrow from the RB) and the prime rate (the base rate at which they lend) is so high - and why they all charge the same rate. Currently, the repo rate is 8,5% and the prime rate is 12%.Mboweni, speaking at the RB's quarterly Monetary Policy Review, stated that for 10 years he has been trying to persuade the banks to compete with each other, giving consumers the opportunity of competitive borrowing rates.
They do compete when it comes to various forms of deposits such as savings and long and medium term fixed deposits. And they have (mainly in the past) offered varying rates above and below prime on secured credit products such as mortgages and motor finance.
But they stubbornly stick together when it comes to the prime rate; the RB cuts the repo rate by 100 points - the banks cut prime by 100 points, all singing from the same song sheet. Mboweni said: "The spread is something we need to look at very carefully. There is nothing that says the spread must automatically be 3,5%. I have tried moralsuasion. It hasn't worked. I appeal to the banks to look at the spread. We need a bit of competition."
Unfortunately, the commercial banks have more on their plates at present. The recession has bitten deeply into their profit margins and the big four, Absa, Standard, FirstRand and Nedbank, are, according to analysts, taking a beating, particularly due to bad debts and the economic slowdown.
Standard chief executive Jacko Maree says the bank expects extremely difficult operating conditions to continue this year. Absa's Maria Ramos says the bank has been adversely affected by distressed consumers. They have all tightened their lending criteria - beyond the strictures of the National Credit Act which first beganputting the brakes on South Africa's consumer spending spree. Mortgage approvals have been particularly squeezed. Data released by the Reserve Bank shows that March returned the lowest mortgage advances growth rate in six years.
There are mixed tales slipping through as to the level of mortgage applications being turned down by the banks, but it is generally agreed that the days of 100% bonds are over. A reasonably large deposit (30% and more) is now the only route for borrowers, and cash is king once again. In fact, Pam GoldingProperties Western Cape region reports cash buyers making up almost 50% of sales, and mainly at the very top end of the residential market. In April, house price growth dropped toits lowest level since November 1986, according to Absa. In spite of the 3,5 percentage points (as at May 15) worth of interest rate cuts since December last, households remain underpressure. The economy is in recession and 2009 GDP growth is expected to be a negativehalf percent. The housing market is forecast to continue experiencing low levels of activity until later in the year. Absa projects that house prices will fall by 3%-4% in nominal terms and 8,5%-9,5% in real terms .Is there any light at the end of the credit tunnel? Will the tight liquidity situation ease? Well, WesBank has announced it has started relaxing its credit criteria and has increased its final approval rate to around 52%, which is good news for the hard-pressed motor industry.
To do so, it has restructured finance deals and now requires bigger deposits, shorter repayment terms, lower balloon payments - and has even introduced retrenchment cover which, says sales and marketing head Chris de Kock, is providing the bank's credit committee with some comfort.
However, long-term mortgage bonds are a different kettle of fish. But where there'sa will there's a way!
Do South Africa's banks need a shake-up? Is there still too little competition in the sector? Share your views below.

HOUSE PRICES WILL FALL FURTHER

Jun 01 2009 17:48
Joan Muller
Johannesburg - Data released on Monday by two residential property gauges have dashed hopes that interest rate cuts would lift SA's ailing housing market out of the doldrums.
The latest FNB house price index showed house prices continued to plummet, with average values falling -11.3% in May 2009 year-on-year (y/y). That is the biggest price drop on record, suggesting that the SA Reserve Bank's 450 basis points rate cuts since December 2008 have had a negligible effect on housing activity.
The Lightstone house price index, also released on Monday, showed a more moderate decline of -4.5% for April 2009. However, the property valuator is also recording a deteriorating trend.
Lightstone director Andrew Watt said preliminary data suggested that house prices would continue to fall in the months ahead. According to Watt, the biggest area of concern appears to be in the affordable segment of the market where properties are priced below R250 000.
FNB's drop of -11.3% in May (-9.2% in April) was the sixth consecutive month of y/y decline in house prices, as measured by transactions financed by FNB.
FNB home loans property strategist John Loos attributed continued price falls to the sizeable oversupply of residential properties coming onto the market, as more and more financially stressed South Africans are forced to sell their homes.
"Unlike the case in 2003, when aggressive interest rate cutting took place in good global and local economic times, current rate cuts are to a great extent offset by an economic recession that is containing growth in household buying power," said Loos.
Winners and losers
Loos expected house prices to fall further over the next month or two, whereafter the rate of decline should start subsiding. However, he foresees nothing more than a "very mild improvement" in demand for the rest of 2009.
Meanwhile, housing data released last week by UK property group Knight Frank showed SA is not the only country whose house prices continue to fall. According to Knight Frank, residential property prices in two-thirds (31 out of 46) of all the countries tracked in its global index had moved into negative growth territory by the first quarter of 2009.
Latvia was the biggest loser, with prices down 36% in first quarter of 2009. This was followed by Dubai (-32%), Singapore (-23.8%), the US (-16.9%) and the UK (-16,5%).
Israel is now the best performing housing market in the world, with prices up 10.9% in the first quarter of 2009. Other top performers include the Czech Republic (9.9%), Jersey (6.9%), Switzerland (5.6%) and India (5.1%).
SA has slipped into 16th position on the Knight Frank ratings. In 2005, when house prices were still racing ahead at about 30% per year, SA ranked number one.
Nick Barnes, head of international research at Knight Frank, said the world's housing markets remain under intense pressure despite a slight improvement shown in some countries in the first quarter of 2009.
"The inescapable trend is that the worst and most widespread economic recession since the 1930s continues to batter housing markets across the globe.
"Rising unemployment, added to constrained credit conditions, means that housing demand remains suppressed. Confidence is low in most markets, which is inevitably having a negative impact on house prices."

HOME LOANS DEPEND ON PRICES

May 20 2009 09:52
Elma Kloppers
Johannesburg - Capital for banks has become a scarce resource.
It has become increasingly expensive for banks to get capital to fund their asset books, especially those assets requiring long-term finance, such as mortgage loans.
This was the reaction on Monday by Gavin Opperman, Absa's group chief executive for securitised loans in the retail division, to the prevailing debate in which banks are being accused from every quarter of smothering the housing market with their lending criteria.
There are currently two issues being debated: banks' stricter lending criteria, in which prospective homebuyers are required to put down a deposit of 10% to 20%, and the interest rate at which banks are advancing money to clients.
Although the prime lending rate is currently 12%, this is not necessarily the rate that all clients pay. Historically some clients secured loans at rates of prime minus two, which no longer offered as an option.
Sean O'Sullivan, head of sales and marketing at First National Bank (FNB), says that in the current market of declining house prices, it is sensible to advance loans more conservatively.
As far as the stricter lending criteria are concerned, both reckon that this is not the time to relax them. "We are still applying a conservative lending strategy because of the falling house prices, but at the same time we are keeping a close eye on the market for any signs of improvement," notes O'Sullivan.
Opperman believes that since the residential market has not yet turned, banks are currently in no position to review their lending criteria.
"As soon as there are indications of improvement, we want to be in a position to review our lending policy and advance money more aggressively than currently."