House prices fell year on year in the first six months of this year to post the largest contraction recorded since the 1980s, property economist Erwin Rode said yesterday.
“House prices last significantly deflated during the first half of 2009, after which they rebounded,” Rode said in the latest edition of his report on the South African property market, released yesterday.
Rode claimed in January this year that house prices in South Africa were still at least 25 percent overvalued despite the economy being three years into “the great recession”.
He had said the implication of this was that a downward adjustment in real house prices was inevitable and only the timing and speed of the decline was in question.
However, Rode did not believe there would be a catastrophic market crash but a gradual decline in real house prices. Rode’s estimate of the overvaluation in house prices was based on the price level suggested by the trend line over the past 44 years.
Most economists and residential property experts scoffed at Rode’s comments.
The latest report revealed that nationally rentals on flats grew by 5 percent and on houses by 4 percent, while growth in townhouse rents lagged behind at 1 percent.
Rode has also ruled out any sudden improvement in demand for commercial office space because the key demand drivers for office space were losing their vigour.
He said the deceleration in output produced by the services sector in the first quarter of the year was discouraging for the outlook for office demand and vacancy rates.
“Waning growth of output in the services sector does not bode well for its employment prospects, which in turn implies continued weak demand for office space,” he said.
Rode added that slumping business confidence was another bad omen for office demand because businesses were unlikely to expand premises or hire new employees while confidence levels were low.
He said office vacancy rates unsurprisingly remained stagnant in the first quarter of this year, leading to unimpressive rental performances.
Rode said rentals in Pretoria’s decentralised office nodes, with price growth of 0.5 percent, were the only rentals that achieved any growth at all in the first quarter.
Market rentals in Johannesburg’s decentralised nodes remained at the same level they were a year ago while those in Cape Town fell 1 percent and those in Durban fell 2 percent.
The outlook for industrial property was also not rosy.
Rode said weaknesses in the manufacturing and retail sectors were likely to continue to place a lid on demand and consequently on rental growth.
Only the central Witwatersrand, with growth of 10 percent, was able to buck the trend of poor yearly growth in rentals in the first quarter.
Rentals either showed poor growth or contracted compared with a year ago in other major industrial areas, such as the East Rand (3 percent), Durban (0.5 percent), the Cape peninsula (minus 1 percent) and Port Elizabeth (minus 2 percent).