Feb 09 2012
Twenty-five percent and five years. Those are the key statistics for property owners in South Africa as from now.
On 11 December 2008 I first suggested SA’s property market is hugely overpriced. And that a long period of slow “price rectification” was facing South Africans. In 2010 I repeated the mantra. In October last year my “gut feel statement” got some serious support and scientific backing in the form of SA’s property guru Erwin Rode (read here).
Today I received his latest newsletter with the best analysis of the situation I’ve seen to date (read here).
In short: real property prices* are on average 25% too high and it will take many years to deflate this price bubble. He suggests five years of five percent per year declines (in real prices!) are what we may see.
* A real decline/rise is what you get when you deduct the inflation rate in a particular year from the nominal rise in that year. (Or add it to a nominal decline!) For example: nominal house prices rose on average 1% in year x; in the same year building sector inflation came in at 6%; in year x real prices would then have dropped by 5%.
So, what would a realistic purchase price be for the average house advertised for R2 million today? R1.5 million. You could also hang on and sell it for R1.59 million in 2017. (Based on assumption of a 25% drop in real prices in the next 5 years.)
Life is tough – and then you die.