Big Banks Crush Hope of Industry Improvement - 07-07-09

July 7 - While there has been optimism that the South African property market is beginning to recover, data released by two main banks over the past week reveal that no major recovery is underway just yet.

Standard Bank and First National Bank (FNB) both indicated that their house price indices show that the prices of houses in the country continue to drop. In fact, say the banks, prices are falling faster than ever.

Standard Bank's index showed the fasted decline - a drop of -4.9% in the median price in June. The bank said that this was the sharpest drop recorded in 12 years of history.

"Given the overall slowdown in the economy and high level of household debt, a clear and quick improvement in the housing market is unlikely," said the economist for Standard Bank, Johan Botha. "Weakness in the property market is set to continue for the rest of 2009."

FNB economists echo these sentiments and say that their index dropped -10.2% in June, compared to -8.5% in May.

John Loos, speaking for FNB, said that buyers are not reacting strongly to the interest rate cuts that came into effect since the end of last year. He believes this is due to the fact that there are high debt levels that do not allow buyers to justify property purchases at this time.

Both banks believe that South African organizations will not relax their lending criteria in the near future due to the growing unemployment rate and lack of growth in personal income.

"Disposable income growth is now falling at a faster rate than household credit growth," noted Loos. "This is reflective of the severity of the global and domestic recession."