South African Real Estate Digest

ABSA Report Q3

2008-08-01T10:20:00.002+02:00

South Africa’s real economic growth slowed down to 2,1% at a

seasonally adjusted annualised rate in the first quarter of 2008 (5,3%

in the fourth quarter of 2007), mainly as a result of supply constraints

and lower levels of demand experienced in the economy.

Surging inflation, rising interest rates and slowing growth in real

household disposable income are adversely affecting the financial

position of households, causing consumer demand to taper off further.

House price growth in most segments and geographical regions of the

housing market slowed down further in the second quarter of 2008.

The average nominal price of affordable housing increased by 12,1%

year-on-year (y/y) to R283 200 in the second quarter of 2008 (14,5%

y/y in the preceding quarter). Real price growth came to only 1,0% y/y

in the second quarter, down from 4,3% y/y in the first quarter.

Nominal price growth of 4,7% y/y was recorded in middle-segment

housing in the second quarter of 2008 (8,2% y/y in the first quarter),

which caused the price of a house in this market segment to average

about R965 000 in the quarter. In real terms, prices declined by 5,6%

y/y in the second quarter (-1,5% y/y in the first quarter).

In the luxury segment of the market, house prices increased by a

nominal 8,8% y/y to about R4,4 million in the second quarter of 2008

(8,0% y/y in the preceding quarter). The average price of houses in

this category dropped by a real 2,0% y/y in the second quarter,

compared with a decline of 1,6% y/y recorded in the first quarter.

At a provincial and metropolitan level, nominal year-on-year house

price growth in the middle segment of the market was markedly lower,

with prices declining in some areas on an annual basis in the second

quarter of 2008. However, on a quarter-on-quarter basis, nominal

house price growth turned negative in most regions in all three

categories of housing (small, medium and large) in the middle

segment. If these price movements are calculated in real terms (after

adjustment for inflation), the current slowdown in the housing market

at regional level is even more pronounced. House price growth in the

second quarter was still relatively strong in the commodity-driven

provinces of the Free State, North West and the Northern Cape.

In the coastal areas, nominal house prices were up by an average of

4,2% y/y in the second quarter of 2008 (9,5% y/y in the first quarter).

The coastal property market has slowed down significantly on the

back of deteriorating economic conditions, as many properties in

these areas have been bought for investment and speculative

purposes in times when this market segment was growing strongly.

Nominal house price growth is forecast to be significantly lower in 2008

and 2009 compared with recent years, with prices set to decline in real

terms this year and next year. Economic conditions are expected to

improve in the second half of 2009 as a result of declining inflation and

lower interest rates. On the back of these expectations, nominal house

price growth is forecast to improve to levels of above 10% from 2010,

with real price growth expected to turn positive again in 2010.

ABSA Report: Property Market Outlook

2008-06-17T16:53:00.001+02:00

• 2009 expected to be the lower turning point in the current property cycle,
taking into account economic conditions and expectations.

• 2009 will be the time to buy property in South Africa, especially for
investment purposes. Capital return will be low, but the rental market will
perform well.

• Aspects around electricity infrastructure expected to have an effect in future,
impacting on the performance of various sectors, industries and the
economy in general. The supply of new housing might be effected, pushing
up demand for and prices of existing housing and properties currently under
construction to higher levels, which might eventually influence the
affordability of housing.

• Nominal house price growth is forecast to drop to even lower levels in 2008
and 2009, with prices set to decline in real terms (real price growth negative)
in both 2008 and 2009.

• Price growth and activity levels are forecast to pick up gradually on the back
of lower inflation and interest rates in late 2009/early 2010.

ABSA Report: Electricity Infrastructure and Property Market Impact

2008-06-17T16:50:00.001+02:00

Eskom’s official statement on new property developments:

Applications for electricity for all new projects requiring more than 100 kVA will
take four to six months to process, with approved projects to go ahead.

Property market impact:

• Developments having approval for electricity and already in the construction
phase will be completed.
• Developments in the planning phase having approval for electricity will go
ahead.
• Developments in the planning phase for which no approval of electricity supply
has been obtained yet, will be delayed, but not stopped.
• Demand for existing property/property under construction/planned
developments having approval for electricity, may increase, leading to higher
prices and faster price growth.

ABSA Report: Residential Property Market Factors

2008-06-17T16:24:00.002+02:00

• The housing market was driven by a range of economic, social, cyclical
and structural factors since 2000.

• These factors include low interest rates, strong economic and household
income growth, a rapidly growing middle class, an increasing scarcity of
development land, a strong investment focus and changes in residential
living trends.

• Nominal house price growth in 2000-2007 was around 19% per annum
(about 13% per annum in real terms).

• As a result of strong growth in property prices, housing in general became
increasingly less affordable, which eventually led to a declining trend in
price growth since late 2004.

• The rising trend in interest rates since June 2006 on the back of
inflationary pressures, together with the effect of the National Credit Act,
had influenced housing affordability and will contribute to house price
growth slowing down further in 2008.

• More recently, infrastructure related issues, especially with regard to
electricity, are expected to influence the property market.

FNB Quarterly Residential Review

2008-03-30T22:52:00.000+02:00

There are signs that lower income groups are experiencing
more strain than the higher income groups at present. This
possibly has less to do with interest rates and more to do
with rampant price inflation of essential items, notably
food.
While FNB’s Property Barometer still indicates superior
activity levels (ignoring the high net worth segment) at the
lower end of the residential market, other indicators point
to some greater stress developing on that end.
Middle-to-lower income bands appear to be net downgraders
in the property market, while the upper income
areas seem to be more in balance, and the high net worth
areas militate towards net up-scaling. Average time on the
market seems to be rising at the lower end while showing
some decline at the higher end, perhaps a sign of the
historic performance differential between the lower end the
and the higher end (in favour of the lower end) dissipating.
However, I do not the believe that the lower priced end of
the market will run into serious trouble. Against the
negatives currently pervasive, it does receive a
considerable degree of support from a flood of new
entrants to the labour market, many of whom join the
property club in the affordable segment before migrating
upward. I believe this can be seen in the Property
Barometer’s estimate of the proportion of buyers by race
group. It was estimated that as at the final quarter of last
year only 51% of home buyers in the former white suburbs
were white. This is a reflection of an economy that is a net
job creator, and much of the net job creation is for
previously disadvantaged groups. What we are seeing in
suburban buying is the effect of this job creation and the
“upward mobility” of a portion of non-white society,
manifesting itself in steady buying in former white areas.
This serves as a strong source of support for the lower end
of the suburban market especially, as it is believed that the
major portion of previously disadvantaged buyers enter the
suburbs at the more affordable end.
This implies a strong source of support for the lower end
market, working against the negative forces. Therefore, I
would merely suggest an end to the superior performance
of what Lightstone calls Mid Value areas, as opposed to a
shift to performance being grossly inferior to the higher
priced end.

FNB Building Stats

2008-03-30T22:46:00.000+02:00

Taking a look at building statistics for 2007 as a whole, we
find that the year was a remarkably good one in terms of
the volume of residential building activity completed.
Don’t be fooled, however, as much of this 2007 strength
had to do with a mini-surge in demand in 2006 which I
believe was driven largely by significant transfer duty and
personal tax relief in that year.
Ignoring building completions and looking at plans passed,
arguably a better sign of things to come in the property
development sector, we see a distinctly more negative
picture developing for 2008.
Whether one looks at plans passed in terms of number of
units or square metres, negative growth was the order of
the day last year, while growth in building values has been
declining steadily.
The indications are therefore quite strong that we will be
experiencing a substantially more negative environment in
terms of residential building activity in 2008, especially
during the first half of the year, as the lagged impact of
interest rate hikes, and deteriorating demand for residential
property in 2007, feeds through into building stats for 2008.
On a provincial basis, it was the Western Cape that, of the
large provinces, showed the best growth, while KZN was
the worst of all 9 provinces. But generally it was the minor
provinces that showed by far the best growth in building
completions in 2007. This would appear to be in response
to property boom times that hit these provinces
significantly later than was the case in the major provinces.
New mortgage loans statistics also point to building sector
weakness approaching in 2008, with new mortgages for
construction of buildings as well as on vacant land
declining sharply.
Besides the recent interest rate hiking, further negatives for
property development in 2008 could come from the Eskom
power constraints as well as from weak buy-to-let demand.
Buy-to-let demand is only expected to improve significantly
towards 2009, on the back of some widening in net income
yields, which are currently low, as well as more convincing
signs that (as we believe to be the case) interest rates have
peaked.

Penalty Interest Charges

2008-03-30T22:30:00.001+02:00

ABSA:

Penalty interest will be charged to a client when switching the existing Absa bond to another financial institution or if the property is sold (the number of years no longer applies)
If the cancellation of the bond takes place 90 days after we've been notified of the intention of the client in writing - no fee will be charged.(new bonds must be at least 90 days old before notice can be given)

However if the cancellation takes place prior to the 90 days a pro rata calculation will be made.(Eg Notification date 1 July cancellation date 13 August - 90 days window date -28 September).
Calculation:Bond amount outstanding R200K, Interest rate 13.5% -R200K x 13.5% divided by 365 days =R73.97 per day X 46 days = R3 402.74

If the outstanding balance is nil then no penalty interest will be charged and if the client replaces his bond with a new absa bond (within 6 months of cancellation) then penalty interest will be either be waived or repaid to client.

FNB:

An early settlement fee is charged when 90 days notice has not been given.
In the case where no notice has been given, provision is made for 3 months interest and calculated on the settlement balance.

This will be calculated at your current interest rate against your bond, effective from the day that those figures were issued to the attorneys.(Eg should your balance be R100 000.00 and your interest rate is 10,50% for 90 days =R2 589.04).

Should the bond be cancelled prior to the 90 days period, you are then liable for the remaining number of days.

If the bond is cancelled after the 90 day period, then the full amount will be waived.

NEDBANK:

There is a 90 days waiting period. If a bond is 3 years and older no penalty interest will be charged. If the client cancels before the 90 days are over he will not be penalized.

If a bond is 3 years and below, there will be penalty interest charges. If the client cancels within the first 3 months he will also be liable to pay interest charges.

Calculation Formula : Outstanding balance X interest rate charged devided by 365 days X 90 = Penalty interest charge.

STANDARD BANK:

In accordance with the NCA, notice has to be given on all bonds. Irrespective of when the bond was registered. Example - it does not make a difference whether the bond was registered 5 years ago or last week.

The penalty interest is calculated as follows: We only charge pro rata, so if notice has been given but not expired, we will calculate on cancellation how many remaining days of the notice is left and calculate only on the remaining number of days.

Notice is calculated on: The balance (when notice was given) X the interest rate divided by 365 X 90 (or remaining number of days)