South African residential property is still not overvalued, despite at least two years of phenomenal growth. At the same time, the number of property investors has risen, though they are buying fewer properties, and in the years ahead they will experience falling yields.
These are some of the findings in the inaugural Standard Bank residential property report, which was launched on Wednesday.
The report also notes that the growth of the black middle class, low interest rates and tax cuts will ensure the boom continues, albeit at a slower pace.
Standard Bank’s residential property price index rose by 24,3% in May from the year before. The index is based on the bank’s home loan book, which accounts for 29% of the home-loan market. The report then uses data from the Deeds Office, and thus captures properties that may be purchased by cash and not captured through the bank’s samples.
The bank estimates houses prices to have grown by 30,9% during 2004. The median price for metropolitan areas in December last year was R445 000, while the price for non- metro areas was R271 000.
The report notes that investor buyers account for about 10% of the property buyers, up from below 8% in 2003. Researcher Elna Moolman suggests that these are first-time property investors.
The number of properties purchased by investors, accounting for about 30%, suggests that the investors are buying fewer properties.
The report notes: “The sharp rise in house prices, combined with a slowdown in rental income is eroding yield by property investors.”
The report then highlights the fact that since 1998 house prices have risen faster than building costs. This, plus the fact that house prices have grown faster than in most parts of the world, is frequently used to suggest overvaluation. But Moolman notes that global comparison of house prices is inaccurate and the limitation with building costs is that they do not include factors such as land costs.