Residential real estate prices increased at their slowest rate in more than four years last month, as demand continued to decline, after a three-year boom period, according to the latest ABSA house price index.
The recent house price boom has put purchasing a house out of reach for many South Africans. So, for many prospective buyers, this is great and long awaited news. But house hunters should not start celebrating too soon...
Price increases were expected to slow
Residential real estate price growth has been slowing ever since it peaked at 35,5% in September and October 2004. Several interest rate cuts meant that people felt more confident to buy property and were able to afford larger mortgages.
Analysts say that the slower rise in house-price inflation was an expected trend, and that the property value growth rate could rise again as early as next year, if the South African economy continues to thrive.
House price trends from the index
The latest Absa house price index shows nominal growth of 13,7% year on year in March, compared with a revised growth rate of 14, 6% in February. This increment was the lowest year-on-year increase since February 2002.
The average cost of the "average house" (a house in the middle segment of the market) is currently about R765 400, according to the index. The "middle segment of the market" refers to 80m2 - 400m2 houses, valued below R2.2 million.
Future house-price trends
Although the slower growth in house prices is expected to continue, even as low as single digits, stable interest rates and a cut in transfer duties, announced by Finance Minister Trevor Manuel, could result in stabilising the house-price growth.
Some experts predict that property value increases will again pick up in 2007. The reasons sited are expected reductions in interest rates and continued strong economic growth. These factors are expected to drive further strong growth in income, and people will therefore be able to afford higher property prices.
There is still a healthy demand for South African real estate, and it is unlikely that the building industry will be able to supply new properties at a pace that will keep prices down. Lower-priced houses will continue to experience a healthy growth in value, but the prices of houses at the top end of the market is expected to increase at a much slower rate.
