South African house prices slowed somewhat to 18,8% year on year in August compared with a revised 19,2% year on year in July, South African commercial bank Absa said in its monthly House Price Index on Friday. This compared with a recent low of 13,9% year on year in November last year.
Absa said that although the average price increase was still relatively strong, the index figures indicated more stable growth since mid-2003 compared with the upward trend in growth experienced during the first six months of the year.
The continued increase in the ratio of house prices to income (an indication of the affordability of housing and which implies that house prices are still increasing faster than income), together with the relatively strong rand of late, impacting negatively on property purchases by foreigners, are possibly having a mildly adverse effect on the growth in house prices, it said.
The year-on-year growth in house prices in the first eight months of the year came to 17,8% compared with 14,3% during the same period last year. In real terms, the year-on-year growth in house prices is still increasing strongly at 13,2% in July (based on the most recent headline consumer price inflation figure) — the highest since the 13,6% recorded in October 2000.
Although the growth in house prices is levelling out mainly as a result of affordability, lower interest rates towards the end of this year will support the market and growth of 18% in nominal terms (11% real) is expected for the year as a whole.
House prices have now risen by more than 58% since 2000, while consumer inflation has risen only by some 23% over the same period.
Last year, house prices increased by 14,2%, while in 2001 the average annual increase was 14,5% compared with 18,9% in 2000.
The month-on-month growth in house prices eased to 0,96% from July’s 1,29%, June’s 1,44%, May’s 1,80%, April’s 1,97% and March’s 2,03%. The March increase was the largest monthly increase since February 2000.
Absa said the South African residential property market continued to perform relatively strongly, despite the higher interest rates and inflation during the course of last year, which had a negative effect on the cost of living.
Absa economists said greater transparency in monetary policy-making and the poor performance of investment alternatives, had seen the private individual divert most of their investment money into property.
“The announcement this morning of a special monetary policy committee for next week may give the property market a boost if there is a rate cut. The first thing a prospective buyer does, is look at what he/she can afford. If you have a 100 basis points cut to 13,5% in the home loan rate, then you can afford a house that is 6% more expensive for the same monthly repayment,” Absa economist Jacques du Toit said.
As South Africa’s largest home loan provider, Absa has up until 2002 released a quarterly survey of house prices based on loan applications to Absa.
The monthly index is based on the total purchase price of houses including swimming pools and other improvements for houses valued at less than R1,5-million and measuring between 80 square metres and 400 square metres.
The index has been calculated back to January 1998 and shows that the year-on-year increase peaked at 21,7% in September 2000. ‒ I-Net Bridge