Pretoria - Interest rates including mortgage rates were expected to be lowered by 3 percentage points during the second half of this year, Jacques du Toit, a senior economist at banking group Absa, said yesterday.

He was commenting on residential property market prospects in Absa's latest quarterly review of the property market.

The housing market was expected to perform relatively well this year against the background of the current macroeconomic prospects, as well as the good performance of house prices in the first quarter of this year, Du Toit said.

The anticipated reduction in interest rates was in line with the primary focus of domestic monetary policy on inflation, and local inflation reaching its upper turning point late last year. He said a strong declining trend in local inflation was expected during the course of this year, especially against the background of the considerably stronger rand exchange rate of recent times .

"In view of the expectation that inflation will decline sharply in 2003, house prices are this year expected to rise for the fourth successive year in real terms.

"This will be the first time since the early 1980s that real house prices have risen for such a long period without interruption," he said. Prices rose by 14.9 percent year on year to about R391 000 for an average house in the first quarter of this year. On average, house prices in all regions increased in the first quarter of this year compared with a year ago.

But price increases were markedly lower in some areas than in others, he said.

These increases ranged from 20.3 percent in Free State to 19.2 percent in KwaZulu-Natal, 17.6 percent in North West, 17.1 percent in Eastern Cape and 16 percent in Western Cape, which all outperformed the average increase of 14.9 percent year on year for the country as a whole.