Last week property prices released by Absa, FNB and bond origination company ooba all pointed to a continued recovery in residential property. Although the actual price increases compared with a year ago were not spectacular and are still well under inflation, the property sales activity is definitely the light at the end of the tunnel.
According to Kay Geldenhuys, ooba property finance processing manager, the bond originator experienced a 60% increase in bond applications in November compared with April 2009, when the property market hit bottom.
As ooba measures bond applications as opposed to sales completed, it provides an indication of the sentiment in the property market (sales completed take several months to filter through).
One of the main drivers has been the relaxation of banks’ lending criteria. According to ooba, the average size of approved bonds increased by 7,9% in 2009, from R655 951 to R707 760.
Saul Geffen, managing director of ooba, says that although this is partly because of the rise in the average purchase price during the year, the lower deposit requirements of banks have been a contributing factor. In December the average deposit required as a percentage of the purchase price declined by 19,4% year on year.
Banks relaxed their deposit requirements during the latter part of the year, says Geffen. At the start of 2010 banks are offering 100% bonds again, which is good news for potential homeowners who have no funds available for down payments. It is also a positive indicator of banks’ lending appetite and their expectations for the property market.
But the bad news is that although you may qualify for a 100% loan, you will pay higher interest rates and the only way to improve your rate is to put down a deposit.
Geldenhuys says that even then the average discount to prime on mortgage rates is higher than it was in 2008 and will remain high until property price growth returns to double figures. And this is not expected to happen any time soon, especially as 50% of initial bond applications are still being declined.
What the figures show
Absa house price index
House prices declined - marginally in nominal terms in 2009 - compared with 2008. Prices declined in the first quarter of 2009, but started to rise in May.
Taking into account the effect of inflation, house prices continued to decline in real terms up to November 2009, although at a much slower pace than earlier in the year. This year nominal price growth of 6% to 7% is expected, with the possibility of a - marginal real price increase based on - nominal price and inflation forecasts.
FNB house price index
The average house price for 2009 declined by 3.9% for the year as a whole, compared with the average price for 2008. But later in the year the index was firmly on an upward trend, with December 2009 showing a further rise in year-on-year house-price inflation to record +2,7%. The trend points towards a significantly better 2010 and an 8% average house-price inflation is projected for the year.
oobarometer price index
A 1,8% increase in the average house purchase price (before inflation) was recorded over the 12months of 2009, from R854 029 to R8 700. The 3% increase in the average purchase price from November 2009 to December 2009 represents the seventh straight monthly rise in local house prices recorded by the oobarometer.