South African
property news
Is affordable housing facing a sub-prime crisis?
Monday, May 18, 2009
The most recent residential property indices released by Lightstone indicate that the latest victim of the market downturn could be the one segment that has until now withstood the fallout.
Price wise, the affordable housing market has been the top performer over the past few years. But signs are now emerging that a price collapse might be on the horizon. According to economist John Lottering of Rode & Associates: ‘Lightstone’s research shows that, on a month-on-month annualised basis, prices in the affordable category are currently showing the largest contractions. In January 2009, the annualised monthly growth rate was a staggering minus 28%.’ The affordable category represents houses of R250 000 and below.
Says Lottering: ‘Because the Lightstone indices are ultra smooth, it is not too dangerous to extrapolate month-on-month growth rates. Thus, one can state that should the latest month-on-month growth persist over the next twelve months, then price levels in the affordable category will be 28% lower in a year’s time.’
Referring to a recent analysis by Paul Harris, chief executive of FirstRand, which appeared in Business Report, Erwin Rode wonders whether South Africa could now be heading towards its own sub-prime crisis: ‘During the Clinton era, the US government put pressure on lending institutions to grant mortgage bonds to categories of people who normally wouldn’t have qualified for loans. This may well be similar to what the government has been doing in South Africa for the past few years with regard to the ‘gap’ market. The question is how many sub-prime type mortgages have in the process been granted due to political pressure? We simply don’t know.’ Rode speculates that the forecast sharp decline in affordable house prices might be the result of rising unemployment. Says Rode: ‘This segment represents salaried individuals at the bottom end of the income ladder who might be the first to be laid off in times of a crunch. Together with tight profit margins on home loans and the high indebtedness of consumers, this might explain why banks have become ultra conservative in their lending practice.’
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