Progress will be slow, but recovery has begun {writer: Staff reporter}

The outlook for the housing market in South Africa, particularly at the lower end of the market, has improved considerably at the start of September on the back of softer interest rates.

In an effort to attract new home buyers and revive the struggling property market, at least three commercial banks have reduced their house purchase deposit requirements.

In some instances, bonds are being offered of up to 110% for houses worth R250 000, for people who earn up to R11 000 per month; and 90% to 95% for houses worth up to R1.5 million.

The first announcement came from Standard Bank. Absa and First National Bank followed shortly on its heels.

These developments come after a number of positive signals from the housing market, including slightly higher prices, an increase in the number of completed sales, an increase in bond application and in the percentage of bond approvals by about 36% since April this year.

The number of offers to buy that progress to actual transactions and registration of new titles are now in the region of between 50% and 60%.

The signs are there that the property market is on the eve of an upswing, although it is not expected to be as strong as the previous boom time or at the levels prior to the National Credit Act (NCA) having come into effect.

For bonds to be approved, however, prospective buyers still have to qualify in terms of the NCA – which at the time of its introduction already had a dampening effect on the market.

The moves by the major commercial banks come in the wake of criticism levelled at them in recent times of probably stifling a recovery by cutting access to credit for hard-pressed consumers through the application of overly conservative lending criteria.

Experts are generally of the opinion that the increase in the demand for houses and the increase in transactions are presently driving a recovery in the market, rather than prices.

It is not expected that prices will lift significantly in the near future, but hopes are high that the market has finally bottomed out.

On average, the prices of houses were still 3.4% lower during August this year compared to August last year, but were up by a modest 0.2% compared to July 2009.

“The turn in the economic cycle is becoming evident and as such, we need to reassess our customer offerings. Although the South African economy still finds itself in recession after contracting for three consecutive quarters up to mid-2009, it is important to note that to date, the interest rates have been reduced by 500 basis points since December and are projected to drop by a further 50 basis points later this year,” said Luthando Vutula, Absa’s managing executive for home loans.

He said the drop in interest rates essentially means that consumers are experiencing relief. With lower inflation and household payments, there should be a notable reduction in loans in arrears.

“In the light of this and a slight improvement in the property market, our loan-to-value caps will be aligned with the prevailing market conditions.

“As a responsible lender and leaders in mortgage finance, we will continue to weigh up the impact these could have on our customers,” said Vutula.

On another front, indications are that South Africa’s construction sector is heading for a tough time, 12 to 18 months down the line.

Mike Wylie, chairperson of Wilson Bayly Holmes-Ovcon Limited (WBHO), when announcing the group’s financial results in early September, said that while 2010 at this stage still looks positive, it seemed as if the government’s planned R787-billion infrastructure programme was experiencing a degree of funding pressure as a result of the economic crisis.

He said margins were tightening, and were much more likely to move downwards over the next two years.

It should also be kept in mind that the 2010 Fifa Soccer World Cup has brought a considerable injection for the South African construction industry.

Most projects directly connected to the tournament are nearing completion.

It is unlikely all that capacity within the sector would be taken up by other areas in the economy.