The question of the South African property Market is on many of our minds. While interest rates are sitting at 30-year lows of 9 percent, South Africans still remain over-indebted and the improvements expected in terms of affordability returning to the property market place are still a way off. South Africa faces many new, complex economic challenges and there is a need for realism on the part of buyers and sellers of property.

“The simple truth is that living expenses are simply not tracking salary increases and affordability still remains a major issue when it comes to property ownership. Added to this consumers have been knocked with hefty increases in energy costs and the price of the average food basket. Increases in living expenses are easily adding R2000 to monthly household running costs,” says Bruce Swain, Managing Director of Leapfrog Property Group. These pressures are in turn having a major impact on spending patterns and people’s attitudes towards credit and perceived value for money.

“Property owners who are holding on for higher sale prices reminiscent of the property boom will be sorely disappointed. Property prices across the country are likely to remain relatively flat for the foreseeable future due to the fact that there is much lower confidence among prospective buyers, the restrictive lending criteria of the banks and a glut of properties on the market, particularly distressed properties which are driving prices down even further. In many respects buyers are spoiled for choice when it comes to picking up bargain properties, if they qualify on the bond front, of course. The inevitable result of a surplus of properties is a drop in prices and a slower market,” explains Bruce.

A knock on effect of the strict lending criteria and the prerequisite of a minimum of a10% deposit is also preventing first time buyers from entering the market, which in turn impacts further down the value chain. There is a marked trend towards ‘buying down’, or cheaper properties as well as a spike in demand for rental properties.

“Property prices in many respects are still over-priced and bond approvals are still very tough. While banks report that the lending environment has improved, it’s coming off a very low base. Buyers need to accept that the 10% deposit required with a bond application is a long-term reality. This along with the costs of the transaction such a transfer costs and registration fees puts home ownership out of reach for many younger people for the foreseeable future,” adds Bruce.

South Africans are also notoriously bad at saving and when looking at what they can afford in terms of a bond, tend to look at the maximum, rather than what they can comfortably afford when interest rates go up, which they inevitably will. “The bottom line is we still need more financial responsibility in the market place and this is one of the reasons for the continued strict lending criteria of the banks as well as the existence of the National Credit Act to regulate reckless lending on the part of both the financial institutions as well as consumers.

“Consumers seem to have already forgotten the reasons for the economic crash. More alarmingly, there seems to be a belief that cutting interest rates is the panacea for all financial woes without changing spending behaviour and relooking attitudes towards getting into debt and managing credit – we’re creating a fool’s paradise,” warns Bruce.

Another important factor in the pace of recovery in the property market is South Africa’s statistics on job losses. Many people are choosing to sit tight until they feel their jobs or businesses are secure and are choosing to consolidate as much as possible rather than incur new debts.

But despite the market challenges, Swain believes that there are still many plusses for serious buyers and sellers who have realistic expectations. “Pricing a property correctly is key to sales success. Many sellers will pressure agents to inflate the price or unscrupulous agents will inflate the price just to get the listing – the result is a property on the market for months without the glimmer of a sale on the horizon. With correct and sensitive pricing given the market conditions, sales are happening – the most active segment is between R500k to R1.6 million,” concludes Bruce with a pragmatic outlook on South African property.