Property Talk

November is typically a high property sales month within the industry, and on a national basis, Seeff recorded its highest sales in four years for the month of November. Summer also has a seasonal impact on sales, and we have found that the first quarter is a typically an active time. Within some price categories the advantage is starting to tip back towards sellers and this makes for a healthy property market.

As we end off 2012 it is important to review the key economic drivers of the property market to be able to get a sense of where the market could be heading over the next six months. At the top of our list is the cost and availability of mortgage finance.

The prime lending rate remains at 8,5%, the lowest level in 39 years. You have to go back as far as between 15 Nov 1973 and 1 Feb 1974 to find the prime lending rate at 8%. Even though rate concessions have become harder to achieve, with most mortgage advances being finalized at the prime rate or above, the price of money is not a limiting factor on the demand for property.

Inflation as measured by the Consumer Price Index (CPI) is currently 5,6% meaning that you have a real interest rate of around 2,9%. Producer price inflation as measured by the Producer Price Index (PPI) is currently dramatically down to 4,2% from a recent peak of 10.6% in October 2011, and with this rate below the CPI we can expect inflation to moderate further.

The availability of finance is a different story. Although credit growth to South African households as a whole has accelerated recently, this has been on non-mortgage credit components. Growth in overall mortgage finance extension has been slow and tends to follow the business cycle very closely.

The South African Reserve Bank leading business cycle index currently indicates flat growth. Ooba, South Africa's largest mortgage originator, has reported a big jump in approved home loans (up 30% in November 2012 and up 47% in October 2012 on the year earlier).

For the 11-month period January to November 2012, Ooba's home loan approvals were reported up by 147% over 2009 and 42% on 2011. This is good news on the availability side, and also indicates Ooba's relative market share growth within the industry.

Ooba's average initial decline ratio (i.e. the first bank decline) is currently 46%. However the percentage of applications declined by one bank but approved by another is 24.4%, taking the effective approval ratio, once Ooba have submitted to all the other banks, to 65.2%. It pays to shop around, especially when considering mortgage finance.

If you are a cash buyer you stand a great chance to negotiate a good deal on a property purchase. The next best thing is to get pre-approval for mortgage finance. FNB are offering their innovative "passport to purchase" pre-approval service for buyers and a free detailed bank valuation service to Seeff sole mandate sellers. These are excellent tools currently available for both buyers and sellers.

From Seeff Dolphin Coast we wish our Bugle readers a blessed Christmas and healthy 2013. For further information and an interactive analysis of this article follow my blog: andreaswassenaar.blogspot.com.