Cracks starting to show in housing market

House prices in South African metros such as Gauteng and Cape Town will hold up best, but by the end of next year a property price correction will be firmly under way

After the property price bubble burst in 2008, recovery has been gradual and balanced between supply and demand, which means the reversal is likely to be equally gradual.

But homeowners will not see their investments appreciate above inflation next year, property analysts say.

The luxury market, above R3.5-million, is already seeing a slowdown in sales, with the segment between R1.5-million and R3.5-million likely to follow suit.

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According to industry experts, the overall market can remain healthy provided the contagion does not spread down into the broader middle-tier segment, which has been kept buoyant by buyers moving up from the "affordable" market.

Urbanisation and a relatively young buyer demographic from the affordable segment have ensured that property deals have kept ticking over through 2015, but as the economy moves into a fourth year of below-par growth, even this activity is expected to slow.

The relatively weak demand has been balanced by a lack of new accommodation becoming available. The 2008 crash whittled down the number of estate agents and resulted in reduced construction activity, leading to a rightsizing of the market.

FNB property sector strategist John Loos said that in the first 10 months of the year, the national average house price rose 6%, down slightly from 7.1% last year. "But if transaction volumes aren't slowing yet, it's imminent."

Loos said the bank's recent estate agent survey - which covers all aspects of their business such as footfall through showhouses and appointments for sales - saw declines in all activity, year on year.

"Normally with a bit of a lag that translates into lower transaction and mortgage volumes," he said.

While this is yet to have an impact on house price growth, the combination of a soft economy, social tensions and interest rate hikes would result in the average house price rising only 4% or 5% in 2016, he said.

"There will be a correction in real house prices," Loos said. "The market has actually held up better than I thought it would - I had expected we would get to that point this year already."

Paul-Roux de Kock, director of analytics at Lightstone, said the signs of a correction were clear in the house price inflation percentages for South Africa's best-performing suburbs, where even the outliers were not returning high figures.

"Gauteng's luxury suburb winner for 2015, Sandown, saw prices grow at 8%. The Western Cape winner, Green Point, grew at 10%, and KwaZulu-Natal's Mount Edgecombe at 8%.

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"Moving to the next segment down, Killarney in Gauteng grew by 10%, Wynberg in Cape Town at 8% and Hutton Heights in KwaZulu-Natal at 10%. Even the pockets of good growth are not spectacular."

If the luxury market turned this year and the high-value market took a hit early next year , the market would be at a crossroads, De Kock said.

"The mid-market segment can continue to be sustained by people buying up from the affordable market, but if the economy keeps contracting there's a strong possibility of that segment also turning to below-inflation price growth by the end of the year, and it will be hard to recover from that."

De Kock said he thought the looming price correction would not be as severe as the four-year aftermath of 2008 had been.

Loos said South Africa's property market still reflected very high real price values by historic standards. "They still reflect a much better economy from five years ago. A correction has to start."

peacockb@sundaytimes.co.za