Analysts said the strong performance of the residential housing market had prompted fears that a price bubble was forming.

According to the latest Absa house price index, in real terms (excluding

inflation) year-on-year growth of 24,9% was recorded in July, compared with a revised 24,4% in June.

The 24,9% increase in July was the highest real increase since early 1981.

Absa senior economist Jacques du Toit said yesterday that the high real increase was largely driven by low inflation.

Although fears of a bubble persisted, Absa said it believed the market was in an "extended boom phase" and was not experiencing bubble conditions.

Absa said that there were also many factors supporting the current property market which were not present or were entirely different in the early 1980s, when the South African residential property market soared dramatically before crashing.

These factors include personal tax relief, lower transfer duties on property, strong growth in real disposable income of households, a relatively low ratio of household debt to disposable income, and relatively low inflation and interest rates.

Absa said that unlike in the mid-1980s, interest rates were not expected to increase sharply during the next three years.