The South African housing market is most probably in the process of cooling off after a strong boom phase over the past few years, according to commercial bank Absa.
“House-price growth is currently on a downward trend and can probably be ascribed to the fact that housing has in general become less affordable, taking into account the high level of house prices, salary and wage increases of well below 10% and mildly lower interest rates during the past twelve months,” Absa senior economist Jacques du Toit wrote in the latest Property Trends newsletter.
“As a result, buyers appear to start showing some resistance against high asking prices, with indications that the difference between asking and selling prices has increased, while properties remain longer on the market before being sold.
“There are also indications that the number of properties sold has declined in recent times,” he said.
South African house prices increased by 26,8% year-on-year in March this year from a revised 29% rise in February and a recent peak of 35,5% in September last year, according to Absa’s monthly house price index.
House prices exceeded a 30% year-on-year increase in April last year after breaking above 20% in March 2003. The monthly rise peaked in January 2004 at 2,97% and was only 1,03% in March 2005 from 1,29% in February this year.
Growth in house prices for last year came in at 32,2% year-on-year, compared with 21,4% in 2003 and 15,2% in 2002.
The number of building plans passed for houses of 80 square metres and above increased by only 6,3% year-on-year in the first quarter of 2005, while those for flats and townhouses increased by just 2,7%.
However, the number of new houses (80 square metres and above) completed increased by 27% year-on-year in the first quarter of 2005, while the number of new flats and townhouses completed during the same period was up by 54,6%, compared with a year ago.
This was most probably the lagged result of strong demand for housing during the course of 2004, when plans passed increased by 30,4% year-on-year for houses (80 square metres and above) and 40,8% for flats and townhouses.
The number of building plans passed at the lower end of the market (houses of less than 80 square metres) declined by 17,9% year-on-year in the first quarter of 2005, while the number of these houses completed dropped by 40,8% during the same period.
“This development is most probably related to the fact that property developers have found it increasingly difficult in recent times to make a decent profit in this segment of the market.
“Factors such as expensive development land, high costs of and delays in rezoning land for high-density, middle-class residential developments have contributed to a sharp increase in holding costs, which put profit margins under pressure in this market segment,” Du Toit concluded. — I-Net Bridge