South African house prices increased to a record nominal increase of 22,7% y/y in March 2004 from 22,4% y/y in February 2004 and 21,7% y/y in January 2004, according to South African commercial bank Absa’s monthly House Price Index released on Wednesday.
As South Africa’s largest home loan provider, Absa has up until 2002 released a quarterly survey of house prices based on loan applications.
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 and has been compiled back to January 1999. The record quarterly y/y increase was in the second quarter 1981 with a 23% rise.
Absa said the upward trend in house price growth since October last year can largely be ascribed to the lower interest rates since mid-2003.
The South African Reserve Bank (SARB) cut interest rates in mid-June for the first time since September 2001. The SARB followed up the June 2003 rate cut with further rate cuts in August, September and October and December for a total of 550 basis points reducing the home loan rate to only 11,5%.
Absa expects interest rates to remain stable for much of the year before rising late in 2004.
The rise in real terms was a record 21,5% y/y in February, the same as in January. The real growth in house prices is based on the most recent headline consumer price inflation figures, which measured 0,7% y/y in February and 0,2% y/y in January.
Despite the abovementioned strong growth in house prices in the first quarter of 2004, growth in both nominal and real terms is expected to slow down this year from current levels. This will result mainly from higher inflation and interest rates towards the end of the year and a continuing rising trend in the ratio of house prices to income.
A further concern among home owners is the possible large increase in property rates in the second half of this year.
“We will have to wait and see how large the increases are before assessing their impact on property prices,” said Absa senior economist Jacques du Toit.
Municipalities will shortly start calculating the property tax on the market value of the property instead of the land values alone. In the Western Cape this is already in common use, but property taxes there are not vastly different from what people in the rest of the country pay now. The property law also stipulates that it will be phased in over a period of three or four years, so the impact in the first year may not be that large.
This is because municipalities are not allowed to increase their income with more than a certain percentage in any one year unless the Minister of Finance gives them special permission.
Any increases must be inflation related and it would be unconstitutional to exceed and approve this maximum without a very good reason.
Nominal y/y increases have only exceeded 20% y/y six times so far in the past 39 months for which data is available, while the recent y/y low was 13,4% in December 2001.
Growth in house prices for 2003 came to 19,1% y/y compared with 15,4% y/y in 2002. The average real growth rate for 2003 was 13,2% compared with 6% in 2002.
Monthly increases have slowed recently as the market came off the boil and were 1,89% in March from 2,16% in February and a record high of 2,45% in December 2003.
The housing market is expected to continue to perform relatively well in 2004. Growth in both nominal and real house prices is expected to slow down this year from the levels experienced in 2003. This would nevertheless make 2004 a record fifth consecutive year of real house price increases.
The anticipated lower growth in house prices this year will result mainly from higher inflation and interest rates in the second half of the year.
House prices have now risen by 83% since 2000, while consumer inflation has risen by 22% over the same period.
In 2001 the average annual nominal increase was 14,3% compared with 17,2% in 2000. – I-Net Bridge