House price growth has averaged 7% in 2014 with marginal real price growth, thanks to a combination of a shortage of housing stock in sought after areas and a growing appetite among banks to extend mortgages to consumers, says Steven Barker, Head of Home Loans at Standard Bank. This has helped cushion the effects of rising interest rates, accelerating inflation and constrained economic growth on consumer appetite for purchasing 'big ticket' items.
"We think we'll continue to see real house price growth said Barker. "While there are pockets of the market in sought after areas within Johannesburg, Cape Town and Durban - where we are seeing growth in the mid-teens, average growth across all segments is likely to remain in the high single digits this year."
The South African Reserve Bank has increased the repo rate twice last year to curb inflation, which remained above its 6% limit from March to August last year before easing to an annual 5.9% in September. The central bank lifted its repo rate by 50 basis points at the end of January and a further 25 basis points in July, taking the repo rate to 5.75%.
"The market pivots around interest rates but while we're in an upward cycle, Standard Bank does not anticipate a sharp and unexpected increase in rates this year," said Barker. "At the moment, the fundamentals of the housing market continue to be driven by purchases that are triggered by life events such as getting your first job, marriage and starting a family."
"There are still a lot of people in South Africa looking to enter the property market for the first time and for the majority of wage earners, the most accessible part of the market is priced at under half a million rand," said Barker. Standard Bank expects a continuation in the strong demand for affordable housing stock, which are homes that retail for less than R500,000. Adding that Standard Bank's average home loan resides along the R800,000 loan category.
Barker cautions prospective home buyers to carefully assess the affordability of any prospective house purchase by ensuring that they have factored in the need for a deposit that can be as much as 20% of a property's value, as well as legal costs and the possibility of rising interest rates. While Standard Bank is willing to extend 100% mortgages, it typically only does so for first time buyers who are purchasing properties priced at less than R1 million.
Attaining a mortgage below the prime lending rate is not the norm these days and one has to factor an interest rate of prime plus fifty-to-one hundred basis points when looking to purchase. It is advisable to do your calculations beforehand so that you are prepared. "You need a 20% deposit for any property priced at more than R2 million and we strongly recommend that you factor in your ability to absorb interest rate increases in terms of your ability to repay your mortgage over the next twelve months. Planning ahead for these anticipations can help the purchase of your home become a smoother transaction," concludes Barker.
