The South African housing market is expected to be supported by strong economic growth in 2005 and the momentum in house-price growth established last year is set to continue into 2005, with nominal growth of between 15% and 20% projected for the year, Absa senior economist Jacques du Toit said on Wednesday.
Writing on the residential property market in Absa’s latest Economic Perspective, Du Toit said on the back of CPIX inflation — expected to remain within the inflation target range of 3% to 6% this year — lending rates, including the mortgage rate, are projected to show a moderate further decline. This is unless international oil prices rise sharply and the exchange rate weakens dramatically from current levels.
The affordability of housing, already under pressure owing to sharply rising prices compared with more moderate increases in remuneration levels, as well as stable interest rates, is an important factor that will probably contribute to lower growth in house prices this year, he added.
In 2004, the average price of houses in the “middle segment” (80 square metres to 400 square metres and priced up to R2,2-million) rose by 32,2% to about R574Â 600 in nominal terms. This is the highest annual rise since 1981, when house prices rose by an average 38,3% compared with the previous year.
In real terms, house prices rose by an average 30,3% last year, the highest real increase recorded in any year between 1967 and 2004.
In the fourth quarter of 2004, house prices rose by an average 34,2% year-on-year (y/y) to about R633Â 500 in nominal terms. In real terms, house prices rose by 30,1% y/y in the final quarter of last year.
In both nominal and real terms, the y/y growth in house prices in the fourth quarter of 2004 was down on that of the third quarter, when it was respectively 34,5% and 32,9%, Absa said.
This was the first time since the second quarter of 2002 that nominal house prices rose more slowly than in the preceding quarter and the first time since the first quarter of 2003 that this was the case in real terms.
Although it is still early days, the strong growth in house prices of the past year seems to be levelling off.
The average increase in the cost of building a new house was 17,2% in 2004. — I-Net Bridge