The recent interest rate hike has now made property even less affordable. “This increase will push the declining rate of growth in house prices lower than previously anticipated,” says Marsha Haupt, sales director of Betterbond.

Haupt goes on to say that growth in the middle segment slowed down to 11.2 percent in December 2007, bringing the average house price to R964 000 at the end of the year. This was the lowest price growth in eight years since December 1999, when it stood at 9.3 percent. In context, this amounts to better growth than the best years in first world countries. “We have come off a very low base and the sharp reduction in interest rates and low house prices gave this sector an unrealistic growth of 30 percent year-on-year over a period of five years.”

In 2006 the interest rate reached a comfortable 10.5 percent and now stands at 15 percent. In a period of two years, a bond of R1-million went from R9 984 per month to R13 168 per month - a monthly cost increase of R3 184.

Recent research indicates that the average house takes approximately 132 days to sell and sectional title property 120 days. Sellers are being forced to drop prices in order to sell their property. The latest statistics for Cape Town show a difference of R122 700 between the asking and selling price. In Pretoria, a difference of R161 816 can be seen. “Statistics also show that 21 percent of homeowners who are selling are downscaling due to financial pressure,” says Haupt.

Sellers who overprice will not sell

In terms of sales, residential property in the ‘affordable’ category of between R400 000 and R1-million, is still experiencing a great deal of sales. “Property prices will level off in the high value areas and volumes will continue in the affordable market. As it is a buyers’ market, ‘greedy’ sellers who overprice their homes will not sell,” says Haupt. In 2006 on an income of R20 000, a buyer qualified for a bond of R600 000, now on the same income buyers only qualify for a bond of R460 000.

There is a definite shift in sentiment from confidence to caution by many investors who are now concentrating on existing assets and ensuring that their cash flow remains positive. Haupt says that they will buy again when interest rates start to decline and the market is flooded with more realistically priced property.

Haupt goes on to say that what South Africa is experiencing is part of a normal property cycle which is found anywhere in the world. “What differentiates us is that we have enjoyed nine years of positive growth and this has resulted in individuals who have over-borrowed and now find themselves in financial difficulty.”

“Ultimately, the market has been very good to us and now we just have to start working smarter. Affordability is going to be the leading factor in this year’s property market,” Haupt concludes.