DECLINE IN PROPERTY PRICES MAY BE ‘OVERESTIMATED’

Date Added: 5/8/2008
Author/Source: Jessica van Sittert of BrayCorp Financial Services


The property market has always moved in cycles, moving from ‘booms’ to ‘recessions’. Sizwe Nxedlana, property economist for Standard Bank, says we are expected to go through a mild downturn in the cycle as apposed to a full blown recession.

The bank has also started to see increased levels of activity in the lower property segments, according to Leon Barnard, director of Standard Bank Personal and Business Banking Products. Most of the ‘cooling off’ has been seen in the upper end of the property market.

According to Mr Barnard, the negative year-on-year growth shown in Standard Bank’s median house price index may be exaggerated due to the higher base value used. The higher base value comes from last year’s sales which may be somewhat inflated as a result of the NCA. Property professionals may have pushed to conclude their high purchase price deals prior to the implementation of the NCA, following fears of tighter lending policies.

This high base may continue to cause inflated negative year-on-year growth rates resulting in a possible overestimation of the decline in house price growth.

A common mistake is to assume that these statistics mean that property prices are dropping. This is a misinterpretation. What this negative year-on-year growth actually means, is that property growth in the same month in 2007 was higher than the growth in the same month in 2008. So, although the growth on property is lower at the moment, PROPERTY VALUES ARE STILL GROWING, contrary to the sentiment in the property market, where buyers are waiting for house prices to plummet.

Leon Barnard, Director Standard Bank Personal and Business Banking Products says: "Property remains the one of the best investments and over time has shown very good returns.”