What the market will do in 2009

What do we know about the year ahead?

- Economists are in agreement that inflation is under control and that we will see interest rates drop steadily during 2009. One may differ on the pace at which interest rates will come down, but what is certain is the downward trend.

- The petrol price is on a downward slide and given the recession being experienced by most of the largest economies of the world, demand for fuel will remain low, hence prices should remain low.

- Recent reports indicate that economists are "cautiously optimistic" about the South African economy for 2009. Growth of about a 2% average over the year is projected with a gradual improvement into the second half of the year.

There are four key factors which affect the property market and prices


1. Interest rates – the downward trend is positive.

2. Affordability – buyers will reap the benefits of reduced mortgage payments and lower petrol prices. The growth spiral in food prices also seems to have slowed down.

3. Economic growth – this factor creates jobs and affords people the opportunity to earn income. Whilst the predictions do not indicate that we will see the average 5% growth experienced over the past three years, we are still in positive territory, unlike the economies in the USA and Europe. It is also my view that the preparation for the 2010 World Cup Football extravaganza has assisted in ensuring continued growth in our economy.

4. Sentiment – plays a major role in whether sellers and buyers will venture into the property market and one certainly gets a sense that, after the battering consumers took in 2008, thoughts will be much more positive. The main beneficiaries of dropping prices in 2009 will be the consumer.

What about house prices?

Property prices are determined by demand and supply.

Early in 2008 we experienced a supply surplus i.e. too many homes on the market with too few buyers. This situation was reflected in the significant increase in the length of time a property was on the market before being sold.

Many potential sellers have taken their properties off the market and those that needed to sell have dropped their asking price. In our trading area we have experienced market values drop by as much as 20% depending on the area.

We find ourselves in a situation in January 2009 where the demand/supply ratio is changing. The supply of properties on the market has reduced and our view is that improved sentiment, lower house prices and improved buyer affordability will cause previously wary buyers to enter the market, thus increasing demand. It is also pertinent to note that property developers have also reduced the amount of new stock they introduce to the market for sale.

The one tempering factor here is that South African banks have tightened their lending criteria and in most applications for a mortgage loan, a buyer will need at least a 10% deposit. This can be a significant amount of money but sellers will have the comfort that they are dealing with a qualified and serious buyer.

What does this mean for property prices? A reduction in supply of homes for sale and a steadily increasing demand as buyers come back into the market will result in price stabilisation. It is our view that house prices may have bottomed but we will not see any serious movement up or down over 2009.

Serious sellers and buyers will find the right price between them with the assistance of a good real estate agent.

Just as the local economists are cautiously optimistic about the growth in the economy, we are confident that we will see a steady recovery in the property market over 2009. One must not expect big change within the first quarter but buyers and sellers will enter the market spurred by improved confidence and the knowledge that the property market will continue to be a viable investment avenue within the context of Southern Africa.