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16 January 2014

House Price Indices - December 2013
Absa - South Africa
House price growth continued to slow down up to end-2013

December 2013 saw year-on-year growth in the average value of homes in the middle segment of the South African housing market slowing down further, after peaking around April last year. This was the result of base effects and continuing month-on-month price growth of less than 1% up to year-end. Economic conditions in general as well as trends in household finances and consumer confidence have also affected the property market and property price growth during the course of the year. These trends in house prices are according to the Absa house price indices, which are based on applications for mortgage finance received and approved by the bank in respect of middle-segment small, mediumsized and large homes (see explanatory notes).

Consumer price inflation slowed down to 5,3% year-on-year (y/y) in November as a result of a drop in fuel prices and lower food price inflation. However, domestic fuel prices edged up again in both December and January on the back of movements in the rand exchange rate and international oil prices, which will cause inflationary pressures. Consumer price inflation is forecast to average 5,7% in 2014. Based on the outlook for the economy and inflation, interest rates are forecast to remain unchanged until the third quarter of 2015 before being hiked.

The residential property market will continue to be driven by economic developments and trends in household finances and consumer confidence. Single-digit nominal house price growth is forecast for 2014, while real price growth will be constrained by consumer price inflation which is expected to be just below the 6% level for the year. Continued low interest rates will support the housing market and the demand for mortgage finance.
Absa House Price Indices Dec 2013

Property Barometer - Estate Agent Survey
FNB - South Africa
4th Quarter 2013 survey sees a resumption of residential activity improvement after previous quarter’s slight decline, as the residential market seemingly defies very weak economy.
In summary, therefore, late in 2013, estate agents surveyed continued to point to a very comfortable and gradually improving residential property market, a broad trend that has been in place since early-2012. As a group they point to a market whose levels of activity are in the “stable” range. They perceive the balance between demand and supply to be gradually improving, stock constraints mounting, and gradually improving price realism. However, they do not yet point to a market that could be classified as “booming or irrational”, and they do not appear to anticipate such a market in the near term, expecting house price growth not far from 5%, which would be not far behind our expectations for consumer price inflation.
FNB Property Barometer 4th Quarter 2013

Banks' reluctance to advance large bonds to self-employed people is not unreasonable
Rawson - South Africa
Most South African bond originators, says Mike van Alphen, National Manager of the Rawson Property Group’s bond origination division, Rawson Finance, have to regularly deal with complaints from self-employed people who have experienced difficulties in obtaining bond finance for new home purchases.

To successful businessmen and professionals, the banks’ caution in preventing them from obtaining such finance often appears to be excessive and niggardly. Furthermore, when they do get a loan, it is often only for 75% or 80% of the property’s value. One hundred percent bonds are very seldom given to self-employed applicants, says van Alphen.

“The banks’ attitude in these matters,” says van Alphen, “is always a great deal more favourable to the borrower if he can give evidence that his business has sustained success over a fairly lengthy period of time, for example three years. An important aspect which needs to be evident in audited financials, is the business’ historical ability to show profits before tax, with an acceptable percentage of these profits being ploughed back into the business as retained earnings. Small business owners tend to draw out the majority of profits as shareholders/members remuneration, often for business tax reasons, and then inject sufficient capital back into the business as shareholders loans, in order to provide the necessary level of liquidity. Whilst this provides the business with the required cash flow in order to continue trading, it does not provide a capital base to the company and often does not reflect in cash reserves in the audited financials.”
Rawson

To repair or sell for less?
Iol - South Africa
You have decided to sell your property but have found out that the roof needs to be replaced. Do you repair the roof or drop the asking price?

While it may not necessarily be the roof that needs repairing, many homeowners may find themselves in similar situations and need to decide between taking on the repairs themselves, or telling potential buyers and hoping they can still sell their home for a reasonable, market-related price, says Adrian Goslett, CEO of RE/MAX of Southern Africa.

'It goes without saying that it is far easier to sell a property that is in tip top condition and which is visually pleasing,' says Goslett. 'When wanting to sell their home, sellers will generally need to spend a bit of time and money on preparing the home and ensuring that the cosmetics of the property are up to standard. These preparations will normally include a fresh coat of paint and perhaps some spring cleaning. Often it may also require that some easily fixed defects are repaired and that everything is in working order. However to what extent do sellers need to repair their home before placing it on the market?'
Iol Property

House Price Index and 2014 Outlook
FNB - South Africa
2013 saw slightly slower average house price growth than 2012, but improving demand-supply balance hints at improved average price growth to come in 2014

The net result of all of the above is that, despite a slowed economy in 2013, other factors, most notably some possibly more relaxed lending by banks as a group, and a constrained supply side of the residential property sector, lead us to lift our 2014 average house price growth forecast to 9%, thus up from 2013’s growth. In 2015, however, we would expect price growth to once again slow, based on our forecast that interest rates could start to rise in 2015.

Therefore, the residential market of 2013 could be described as a “comfortable and well-balanced market”, which was still largely free of extreme or crazy” behavior, and certainly not booming. Despite a weak economy that looks likely to persist, supply constraints could cause 2014 house price performance to be slightly better in our view.
FNB Property Barometer_Dec 2013 House Price Index

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