South African house prices are expected to increase by about 12% on average in 2003, according to banking group ABSA.
Writing in ABSA’s latest quarterly perspective, senior economist Jacques du Toit says domestic inflation seems to have peaked and a declining trend in this variable might be expected during the course of 2003.
With domestic monetary policy currently focusing primarily on inflation, he says, interest rates (including the mortgage rate) can be expected to decline by a total of 300 basis points during 2003.
“Against this background the housing market is expected to perform relatively well in 2003 and a nominal price increase of about 12% on average is forecast for the year.
As soon as inflation starts declining, real house prices will begin to increase, following the small 0,5% decline recorded in the fourth quarter of 2002. An average house price increase of about 4% in real terms is anticipated in 2003.”
House prices in South Africa increased by 14,2% year-on-year in 2002 to R358 000 for the average house.
Taking into account an average consumer price inflation rate of 10,1% in 2002, this represents a 3,7% increase in real terms. In the fourth quarter of last year, house prices increased by a nominal 13,9% (-0,5% real) to about R375 500.
The average increase in the cost of building a new house was 14,1% in 2002. In view of this, the average price of a new house amounted to about R483 700 last year, nominal 18,9% and real 8% higher than in 2001. The average price of an existing house was about R341 400 in 2002 (nominal 13,1% and real 2,7% higher than in the previous year). This made it about R142 600, or 29,4%, cheaper to buy an existing house than to build a new one.
The average price of an existing house increased by 12,8% year-on-year to about R356 300 in the final quarter of last year. This represents a real decline of 1,7%. The price differential between new and existing houses amounted to about R172 600, or 32,6% in that quarter.
Commercial banks’ mortgage rates stood at 17% at the end of 2002 after rising by a total of 400 basis points during the course of the year in response to increases in the Reserve Bank’s repo rate. Against this background, the mortgage rate averaged 15,8% in 2002.
Taking into account an average house price of R357 960 last year, the monthly repayment on a new mortgage (80% over a repayment period of 20 years) amounted to about R3 941, compared with R3 081 rand in 2001. – I-Net Bridge