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Residential Too costly: falling demand could lead to oversupply of real estate stock

Posted On Sunday, 15 June 2003 02:00 Published by
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Salary 'gap' dampens home prices

AN INCREASING gap between property prices and salaries is putting the brake on spiralling real estate prices, raising the likelihood of an over-supply of stock in various parts of the country within the next six months.

This is according to Mark Beckett, managing director of mortgage originator Bond Choice, who believes that a large part of the market countrywide simply can no longer afford to buy property in light of massive price increases over the last two years. "

There has been intense activity in the market in the last couple of years with people buying upwards, but salaries in real terms have not kept pace with the increase in property prices and I think we're getting to a point where the second-hand market is going to start stabilising.

Prices won't come down but the rate of increase we've been experiencing in the past is also not going to continue," says Beckett. "Coupled with a more favourable interest rate and real salary increases, people will then start being able to afford to buy again."

But Jacques du Toit, senior economist for Absa, believes people shouldn't wait for rate reductions before buying. "In the first four months of this year, prices increased on average by 16% without any reduction in the interest rate," he says.

He said he expected prices to continue upwards for the duration of the year. Homenet Property Group chairman Robert Ketjen says he believes the large escalation in prices in the last 10 months is close to the top of the wave, largely due to an increasing lack of affordability.

"Even homeowners in affluent areas and developments are hurting, especially those who paid over the top prices for their homes as a result of the runaway market during this period," he said.

Ed Grondel, CEO of First National Bank Homeloans, says a lower interest rate environment tends to stimulate the demand for residential property which inevitably leads to higher property prices, so in general terms, the earlier one enters the property buying cycle the better.

Publisher: Weekend Argus
Source: GRAHAM NORRIS Property Editor
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