South African property price decline is fastest in 11 years

South African Property Price Decline is Fastest in 11 years

Pretoria – House prices, excluding the effect of inflation, dropped by 5 percent year on year in April, which is the biggest decline since March 1997.

Absa, which released its latest house price index yesterday, is now forecasting for the first time that real house prices will slip this year and next year.

Jacques du Toit, a senior property analyst at Absa, said the forecast had been changed because of the upward movement in interest rates, which were still expected to rise further this year and would have a major effect on the growth in house prices, and inflation ticking upwards.

House prices have now declined in real terms for three consecutive months, according to Absa’s house price index.

Negative real growth of 1.5 percent was recorded in February, 3.4 percent in March and 5 percent in April.

February was the first time real house prices had declined since June 1999.

Du Toit said the real price of a middle segment house had dropped by 5.7 percent to about R614 400 in April from an all-time high of about R651 600 at constant year 2000 prices in August last year.

The average nominal house price had declined by R4 000 over the past three months.

Absa said nominal house price growth dropped further last month to 4.3 percent year on year in the middle segment of the market from a revised growth of 5.5 percent in April.

This was the lowest nominal year-on-year price growth recorded since October 1999, when it was also 4.3 percent.

Homebuyers have now shifted their focus to smaller and more affordable properties.

The release of the house price growth slump news coincided with this week’s warning by Lew Geffen, the chairman of Sothebys International Reality, that house prices were expected to drop by about 40 percent by the end of this year.

Other major estate agency businesses reported that sales volumes were about 30 percent lower, housing stock available for sale had doubled in the past five months, buyers had declined and that banks had tightened their lending criteria.

Du Toit said developments on the inflation front, together with recent comments by Reserve Bank governor Tito Mboweni that drastic measures were needed and that the bank was now forecasting CPIX (consumer price index minus mortgage costs) inflation to decline to the 6 percent level again only by 2010, were expected to result in the monetary policy committee hiking interest rates by 100 basis points next week.

He said there was the risk of further rate hikes later this year if the CPIX inflation rate remained stubbornly high.

“In view of these developments and expectations, activity levels in the residential property market, and both nominal and real house price growth, are forecast to slow down even further in the rest of 2008 and into 2009,” said Du Toit.

“In real terms, house prices are expected to decline this year compared with 2007, with a further real decline projected for next year.”

Authored By: Roy Cokayne
Published By: Business Report