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February 2015
Housing
A
ccording to John Loos, House-
hold and Property Sector Strat-
egist Market Analytics and
Scenario Forecasting at First National
Bank Home Loans, economic events
look set to be more positive in 2015,
compared with 2014, with the drop
in global oil and food prices looking
set to drive consumer price inflation
sharply lower and household real
disposable income growth higher.
These events are expected to
lead to further residential market
strengthening and mildly higher
house price inflation this year. “But
our forecast of a strong increase in
residential building completions will
have little to do with further residen-
tial demand strengthening in 2015,
and more to do with prior years’ de-
mandgrowthand the steady build-up
of existing home supply constraints
over the past three years.”
He explains, “We believe that the
time has come for the residential
development sector to supply new
stock to the market at a significantly
faster rate, and as such forecast 2015
m² of residential completions to grow
by 21,6%.”
The mood in the residential prop-
erty industry is a generally positive
one, and so it should be. The market
is far from booming, but has shown
a nice solid performance over the
past three years since 2012. Rising
demand has gradually mopped up
‘excess supply’, and a noticeably in-
creasing percentage of estate agents
participating in the FNB Estate Agent
Survey have been pointing to short-
ages in residential units for sale.
This improving balance between
supply and demand has, in turn,
driven some positive house price
inflation in real terms
Residential growth
‘The mood in the
residential property
industry is a generally
positive one.’
A noticeable growth rate in the level of new residential
building completions is expected to be the highlight in 2015.
over the past three years (refers to
where house price inflation exceeds
Consumer Price Inflation). And look-
ing forward into 2015, the spectacular
oil price fall emanates from major
global investment in various forms of
energy production capacity, notably
oil and shale gas.
The FNB interest rate forecast is
for the South African Reserve Bank
(SARB) to lift
its policy repo
rate gradually
higher from the
current 5,75%
t o 6 , 5 % b y
year-end, tak-
ing prime from
9,25% to 10%.
The reasoning behind this mild rate
hike at a time when inflation looks
set to fall through the floor, comes
from the SARB’s desire to normalise
rates gradually upward fromwhat are
believed to be abnormally low levels
by South African standards.
Even if SARB
increases rates
slightly this
year, the
positive
impact of lower inflation in not only
boosting economic growth, but also
in translating into higher real dispos-
able income growth, is expected to
sustain further growth in housing
demand.
Therefore, from an estimated 1,5%
in 2014, we forecast an acceleration
to 2,5% in real disposable income
growth this year. Forecasters are
inclined to underestimate the impact
of both strong negative as well as
positive shocks,
and this oil price
slump is certain-
ly big enough to
be classified as a
shock.
The down -
side risks to the
g r owt h f o r e -
casts, however, remain the same two
as highlighted previously - South Af-
rica’s electricity supply reliability and
capability, as well as the ability of la-
bour relations to hold up better than
in 2014. For the time being, though, it
all appears to lookmore positive than
back in the
first half
of 2014,
when strike action disrupted output
significantly.
The expectation of stronger real
householddisposable income growth
in 2015 compared with 2014, leads
to a forecast of further increase in
residential demand. “However, we
would expect the pace of demand