South African house prices increased by 29,6% year-on-year (y/y) in January 2005 from 32,3% y/y in December 2004 and a recent peak of 35,5% y/y in October 2004, according to South African commercial bank Absa’s monthly house price index (HPI) released on Thursday.
House prices exceeded a 30% y/y increase in April 2004 after breaking above 20% y/y in March 2003.
The monthly rise peaked in January 2004 at 3,1% and was only 1% in January 2005 from 1,4% in December 2004.
This means that house prices have more than doubled since June 2000, while consumer inflation has risen by only about 25% over the same period. The nominal growth in house prices last year was 32,2% and Absa expects this to slow to the 15% to 20% range in 2005.
Absa said that against the backdrop of strong price rises in the local residential property market, fears of a price bubble persisted. However, the bank noted, recent long-term analyses of indicators such as the ratio of house prices to remuneration, the level of real house prices and the price difference between new and existing houses in South Africa indicated that these variables were not currently at historical highs, especially if compared with the property market boom of the early 1980s.
In addition, it pointed out, there were many other factors currently supporting the property market, which included: personal tax relief; lower transfer duties on property; strong growth in the real disposable income of households; a relatively low ratio of household debt to disposable income; the improved investment status of property compared with that of other asset classes; relatively low inflation and interest rates; and strong domestic and foreign demand.
Absa said the upward trend in house price growth since October 2003 could largely be ascribed to the lower interest rates since mid-2003. Prior to this episode, the last time that house prices rose by more than 20% y/y was in October and November 2000.
Growth in house prices for 2003 came to 21,5% y/y compared with 15,1% y/y in 2002. – I-Net Bridge