The South African property market is expected to remain under pressure early in the new year, but there is the prospect of a gradual improvement in demand during the second half of 2009, property experts told I-Net Bridge.

In his 2008 fourth quarter housing review, property analyst Jacques du Toit said: "In view of the current and expected domestic economic conditions towards end-2008 and into 2009, the housing market is forecast to stay subdued over the next 12 months."

He noted that in 2009 nominal property price growth is expected to be extremely low, even lower than 2008, if not negative during the early stages of the year.

The demand for property, he said, would still be relatively low but that both demand and price growth are expected to bottom next year and to pick up gradually during the second half of the year.

"The pick up will be mainly on the back of declining inflation and a number of expected interest rate cuts expected during the course of the year," he said.

For the first time this year, the South African Reserve Bank's Monetary Policy Committee (MPC) this month reduced the repo rate by 50 basis points to 11.5%.

The downward movement in the local CPIX and PPI figures is a strong indicator that the inflation is on the decline and this suggests that further interest rate cuts could be likely in the new year.

"It will most probably be in 2010 when the property market shows a marked improvement," said Du Toit.

"The general move in property values this year had been weaker, first in the form of declining inflation, but in the latter part of the year I believe we have moved into full-blown price deflation," said John Loos, property strategist at FNB.

He said that demand had declined more dramatically than prices, but a slowdown in supply has curbed the deceleration in prices, as many people don't sell houses in such a weak market. Those that do often hold on for longer to obtain their price, and the supply of newly built stock coming onto the market is also slowing.

"So the slowdown in supply to the market has helped to partially support prices as demand plummets," he said.

"I don't think that the full impact of the global economic growth slowdown has yet been felt on the market," he noted.

He further explained that it was the commodity price spike earlier this year, most notably oil and food prices, which had had the major impact to date, causing local consumer price inflation to eat into disposable incomes as well as having driven interest rates up.

"Much of the negative impact from the global crisis therefore still has to be felt in 2009," he warned.

Looking ahead Loos said that he expects to see the FNB house price average show average deflation of between 3% and 5%, although on an area-to-area basis many areas would be worse hit than the average.

However he noted that it wasn't all doom and gloom.

"We expect the interest rate cutting to continue through much of 2009," he said, noting that this decrease was expected to see demand bottoming out in the first half of the year and improving in the second half.

The recovery in demand is expected to be gradual, though, constrained by low economic growth and job losses, which will partly offset the positives of interest rate cutting.

Loos said that demand for property could start showing significant recovery towards mid-2009 and in the second half of the year, while house price inflation is expected to respond with something of a lag, turning positive only very late in 2009 or early-2010.

Source: I-Net Bridge