The moderation in house price growth, to 21,9% last year from more than 32% in 2004, comes as little surprise. The general consensus among analysts is that the South African housing market will experience even slower growth this year.

Absa senior economist Jacques du Toit is expecting nominal house price growth of 10%-12% this year in the middle segment of the housing market. His counterpart at First National Bank, John Loos, is expecting nominal growth of 12%-15%.

Property economist Francois Viruly is expecting nominal house price growth of 15% in the middle segment of the housing market, which he defines as between R500000 and R700000.

Economists say that the easy money has already been made and that investors are going to have to think smarter to realise capital growth.

The question investors are now asking is where they can still find value in the residential property market, which may be fully priced in certain areas.

FNB's Loos says that while the overall economic cycle is leading to a softening in residential property, there are some "major urban structural changes which could provide value in the coming years".

The most likely prospects are in rejuvenated inner-city areas.

Loos says two central business districts (CBDs) "worth looking out" for in the next few years are Johannesburg, with the western part or financial district being the focal point, and Durban, towards the uShaka development side of the city.

"Although some residential property in these areas is already not that cheap anymore, I believe that the rejuvenation around these areas provides scope for some rapid further price increases in residential property in and around these areas over the next few years, as prices have come off a low base," he says.

He says that in Johannesburg in particular, government tax incentives for CBD developments are beneficial and that rapidly increasing traffic congestion will drive people to live closer to work.

"Once higher-income residential living in the CBD really takes off, retail and entertainment will also get an upgrade, and this combination of retail, entertainment, residential living and business can provide a real impetus to the rejuvenation."

However, Viruly is cautious about CBD residential markets, saying that in order to succeed, residential components will need to be carefully integrated with municipal infrastructure needs.

"Those needs are very different from the municipal delivery requirements of an office node and here I am thinking of schools, parks and other facilities," Viruly says. "Failure to deliver these may well compromise the delivery of housing in CBDs."

He says areas such as Gauteng's West Rand are potential growth areas.

"The catchment area around Clearwater Shopping Centre in Roodepoort, for instance, is a typical example of a new growth area."

He also believes there are prospects for investors in smaller towns or provincial capitals such as Polokwane and Nelspruit.

Absa's Du Toit says the lower- to middle-income segments of the housing market - which he classes as between R200000 and R2,2 million - will provide price growth this year of 10%-12%.

"We do not foresee prices at the upper market picking up significantly in 2006.

"The growth will come from the lower to middle income segment," says Du Toit.

Du Toit says 5%-7% nominal growth is expected in the top end of the market, which he classes as prices ranging from R2,2 million upwards.

Neville Schaefer, CEO of rental company Trafalgar, says he expects a slowdown in the supply of new residential properties as narrowing profit margins and slower sales "squeeze amateur developers out".

"Investors will start to concentrate more on income returns as their expectations of capital growth moderate.

"That is one of the factors that will start pushing rents up," Schaefer says.

He says rentals in Johannesburg's northern suburbs, in Durban's northern and western suburbs and in most of Cape Town will not increase much this year, with growth rates of about 4% expected.

However, Schaefer says that they are likely to rise more strongly next year, when the oversupply of accommodation is taken up by people.

"I expect at least 10% rises in the older and inner-city suburbs of Johannesburg and Durban as demand grows even more strongly," he says.