News: Johannesburg grinds to a halt'

Tue, 02 Oct 07

Home price escalations in Johannesburg have come to a virtual standstill and owners should expect little or no growth for the next 12 months...

That’s the shocking prediction of Lew Geffen, chairman of Sotheby’s International Realty in SA, who says that while prices have risen this year, the August interest rate increase has put a lid on further growth – and that this situation is quite likely to be exacerbated by another rate increase in October.

The latest Absa figures show that prices in the middle segment of the housing market grew 7,5 percent in real terms in the 12 months to end-July, and Standard Bank’s figures show an increase in its median house price of 5,7 percent year-on-year in August.

Zero growth

Geffen added: “But our expectation is that Johannesburg prices will be showing zero growth by year-end and that this will continue until interest rates start coming down in mid-2008,” says Geffen.

“With the household debt to income ratio now at almost 76 percent, there is really significant buyer resistance to the current level of pricing because of the loan repayments involved, and we are already seeing instances where it is taking more than six months to sell a property.”

This is obviously not good news for home sellers – and especially those who have owned their properties for less than two years, who face the prospect of really tough negotiations to get a property sold while making little or no profit on the deal.

Willing to negotiate

The news is, however, better for prospective buyers because although prices may be higher than they like, genuine sellers are likely to be willing to negotiate. Wages and salaries may now also start rising faster than house prices.

Indeed, says Geffen, while it is not pleasant for the participants, this stagnation will finally bring the market back into balance. “At the moment the market is still about 10 to 15 percent overblown. But the way things are going, it should have corrected by the middle of next year when, short of any sudden economic shocks, we can expect to see supply and demand in balance again.”

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