SA housing market stabilising

Posted On Friday, 04 February 2005 02:00 Published by
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The rate of growth in house prices now appears to be on a declining trend as people find housing less affordable
By Nick Wilson

The rate of growth in house prices, which peaked around September or October with year-on-year growth of just more than 35%, now appears to be on a declining trend as people find housing less affordable.

According to the latest Absa house price index, nominal year-on-year growth of 29,6% was recorded in house prices last month, while the revised growth for December came to 32,2%.

Absa, which projects growth of 15%-20% in house prices this year, said yesterday that the strong growth in house prices was not expected to continue unabated.

The country's biggest home-loan lender, it said it did not expect a sharp downward trend in prices.

Senior economist Jacques du Toit said the affordability of housing was coming to the fore as people's salary increases had not kept up with the increase in house prices.

In real terms taking inflation into account year-on-year growth of 27,9% was recorded in December last year compared with a revised 29,4% in November.

The average real growth in house prices came to 30,3% last year, taking into account an average headline inflation rate of 1,4% during the past year.

Property economist Francois Viruly of Viruly Consulting said the market was "on a knife's edge between buying and renting".

"I think people who are starting to be hit by the affordability issue are starting to ask themselves whether they would be better off renting rather than buying."

These people were the ones making decisions, and affordability in the upmarket areas of Johannesburg, or any major metropolitan centre, was a concern, he said.

"The rental market has become relatively attractive at the moment."

Viruly said some property owners were not seeing the returns they expected when acquiring their properties, and that there was a possibility that some of those properties would re-enter the market at lower prices.

He said the upper end of the housing market which includes houses from R1m upwards was "presently well priced.

Prices were relatively cheap, and I think we have done some catching up and we are there at the moment."

Viruly said he thought it would be "healthy" for the property market to level off at house price increases of 20% this year.

He said doing so would sustain the market in the long term, and it would avoid a boom and bust .

Viruly said one of the reasons for the tightening of monetary policy in many countries last year was to stabilise their property markets.

"I think the South African market is probably achieving that itself."

Business Day

Publisher: Business Day
Source: Business Day

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