Banks, estate agencies take pain as new credit rules see home loan customers turned away en masse.
Times are set to get tougher for consumers and businesses that depend on their spending before they get better. That was the message that emerged earlier this week after one dismal property statistic after the next was released.
More than 50% of all home loan applications were rejected by banks last month, up from just over 40% of applications in June last year, statistics released by South Africa's biggest mortgage originator, ooba, show.
That figure emerged on Monday along with gloomy residential house price figures released by Absa as well as news that the bank is cutting back its staff numbers. Job cuts at FNB are also on the cards as employees in home loans-related functions twiddle their thumbs.
Bank shares, meanwhile, have taken a hammering thanks to all the bad news emerging from the sector.
Estate agents and mortgage intermediaries have already been taking strain, with many leaving the industry and others seriously contemplating doing so.
Those who are determined to stay the course through these turbulent times, however, believe the current shake-out will be good for business in the long run.
"All the fly-by-nights are leaving. They are realising that there's no easy money to be made in selling property," one Cape Town agent told Realestateweb, summing up the general view.
Latest figures released this week show nominal house prices in the middle income range have at best remained static for the past six months, but in real terms - or taking into account the effect inflation has on purchasing power - residential real estate is losing money.
Unfortunately for sellers and property industry players, the tough times are set to continue well into next year, with Absa and Standard Bank expecting another interest rate hike in August.
Rising interest rates, stringent new consumer credit legislation and soaring fuel, food and electricity costs have together put the financial squeeze on consumers. Negative sentiment about the country's political landscape has also doused enthusiasm for property.
Affordability is a major issue, said ooba's chief executive Saul Geffen, with bond repayments up nearly 40% in the past two years and average interest rate concessions to prime also falling - from 1,31% to 1,25% in the past year.
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Absa's House Price Index for June showed property prices in middle income suburbs ticking up at a very modest 3,8%.
The average house now costs about R965 500, according to Absa's measure.
This is significantly below the rate of inflation, with CPIX currently at 10,9%.
In May prices in real terms dropped by 6,3%, year-on-year, compared to the 4,8% drop in April, noted Absa's senior property economist Jacques du Toit.
Standard Bank's residential property gauge measures a median house price (half of all houses sold are cheaper; half more expensive). That figure is now R550 000 and is down by more than 11% compared to June last year.
The prime interest rate has moved up from 10,5% to 15,5% since June 2006.
Du Toit said this week that nominal and real house price growth should "taper off further from current levels towards end-2008 into 2009".
He forecasts nominal house price growth of 5% for 2008 and a more modest 4% for 2009.
"In real terms, house prices are in line for a drop of some 6% on average in 2008, with a further real price decline of 3,3% projected for next year," he said.
Du Toit said the biggest ever real drop in property was in June 1985, at -22% year-on-year.
South Africans last felt extreme property-related financial pain in the late 1990s, when interest rates soared above 20%.
Worrying now, according to Sizwe Nxedlana of Standard Bank's economic research division who compared the current market to that of the late 1990s, is that inflation now is higher. Plus, between 1997 and 1999 house prices were "not registering deep negative year-on-year growth rates".
"The combination of factors that have served to reduce the affordability of residential property has led to a noticeable decline in the demand for residential property."
The outlook for residential property "remains bleak", he said.
