“The residential property market in South Africa is not being defined by the forces of supply and demand but by the tight grip the big mortgage lenders continue to hold on their business,” says Ronald Ennik, an executive director of the Leapfrog Property Group.
 
“Furthermore, the outlook for meaningful home price growth will remain bleak as long as the big banks continue to value properties too conservatively – in some cases by as much as 15 per cent below genuine market price,” he adds.
 
“In one recent example, Leapfrog sold for R1,6-million (to one of three willing buyers) a property that the bank valued at R1,4-million. As a result, the bank’s tight lending criteria disqualified the buyer for mortgage finance on the deal. Happily, in this case, the bank adjusted their valuation and the deal went through – but this was a welcome exception rather than the rule,” says Ronald.
 
“Agents often sell homes at prices that are 10 to 15 per cent higher than banks’ conservative valuations of the properties – and, in many cases, the valuation difference is a deal breaker.
 
“The reality remains that an almost unprecedented 40 per cent of bond applications continue to be declined by the big banks. While it is understandable that they are still sitting with a large number of bond defaults, and would clearly wish clear their decks of surplus stock, the mortgage granting pendulum has gone too far and it must surely be time for it to start swinging the other way.
 
“Until it does, meaningful growth in home prices will remain slow,” says Ronald.
 
“The question is: Are South African banks being overly influenced by trends and developments in the far more shakier homes markets in the US and Europe, where the credit collapse was a great deal more intense than in South Africa?”
 
Ennik’s comments come at a time when Absa’s latest house price indices (for April) show that values in the small home category (average price: R766 300) were just over 5 per cent down year-on-year. In the medium-size category (R972 900), values were close to 4 per cent lower than last year.
 
“Measured against inflation, there is clearly little or no growth at all in property prices,” Ronald concludes.