The property market will get worse before it gets better next year, analysts say, as SA looks forward to lower inflation, which will lead to a cut in interest rates before stimulating the economy, jobs and ultimately the property market.

The local benchmark interest rate, which the Reserve Bank has raised by five percentage points since June 2006 to 12,5%, led to household indebtedness increasing and a decline in the residential property market. But the global economic slump, which stemmed from the US mortgage crisis, has played a role as well, with international firms retrenching staff, putting a strain on households’ disposable income.

Jacques du Toit, senior property analyst at Absa Home Loans, says the rise in interest rates has meant mortgage repayments have risen 35,6% in the past two years. The National Credit Act and banks’ more stringent approach to granting credit had also had an effect on the affordability of property.

According to Absa’s residential property findings, real house price growth was at -1,2% year on year last month.

Although nominal house price growth was not yet at that level, it was headed towards zero growth. Because of the lower nominal price growth, the market will bottom and the time to buy property will be the end of this year and beginning of next year, Du Toit says.

However, price growth and activity levels will pick up gradually on lower inflation and interest rates during the second half of next year.

He says although growth in mortgage advances was still strong last month at 16%, it would decline by the end of the year to 12%-13%.

Although the residential property market was hard hit by the economic slump, the commercial property sector did not suffer the same hardships.

Francois Viruly, property economist and professor of property studies at the University of the Witwatersrand, says talks on an inclusive property development policy (both formal and informal markets) in the commercial sector will resume next year.

Developments such as The Zone in Rosebank, which incorporate formal tenants with informal tenants such as the African craft market, will become a regular concept.

He says the Gautrain will also affect the commercial property market next year as more developments sprout around the proposed stations. “Transport nodes will create very exciting opportunities.”

Green building will also have a heavy influence. “A-grade buildings could suddenly become lower grade based on it not being green,” he says. Overall, Viruly expects a slowdown in the number of new commercial property developments.

Source: Business Day