A new boom in 2007?
Mon, 06 Feb 2006
While all indications point to a slowdown in residential property in South Africa this year, the market may begin to recover as early as the first half of 2007, FNB property strategist John Loos said on Monday.
Loos cautioned, however, that with residential property prices coming off a high base, he was not expecting the same sort of growth seen in recent years.
The path in house price inflation appeared to be a downward one for the immediate future, Loos said.
He noted that the South African Reserve Bank Monetary Policy Committee last week left the repo rate unchanged at seven percent and there has been little interest rate stimulus since 2003, with only one 50 basis point repo rate cut per year in 2004 and 2005.
Other factors contributing to decreased house price inflation were a rising household debt-service ratio, recent strength in growth in new housing stock and house price inflation coming off an extremely high base.
Supply and demand
Supply and demand were as key to property prices as they were to other markets, said Loos.
The declining trend in house price inflation since a peak of 34.6 percent in the third quarter of 2004 as reflected by the Absa House Price Series had been caused by both flagging demand as well as booming supply-side growth.
He noted that last week's release of mortgage advances data showed lower year-on-year growth, a further indication of demand growth tapering off in the highly credit driven housing market.
Loos said that while many commentators anticipated that the average national house price inflation to be in the low teens for the year as a whole, by late 2006 the year-on-year growth rate could be down to single-digit figures or even close to zero.
Economic growth
"Nevertheless, with FNB anticipating economic growth of between four percent and five percent per annum over the next few years, and a rapidly expanding middle class, housing demand growth can expected to be strong.
"On the supply-side, the building industry and land supply may struggle to keep pace. Therefore, once the high base off which house price inflation currently comes has been reduced... solid economic fundamentals could see house price inflation moving back up into the ten percent to 15 percent range later in 2007 where it could remain for the rest of the decade.
"After a brief lull in 2006, this would see growth in new housing supply also recovering later in 2007."
The extremities of the post-1998 boom would probably not be repeated in a hurry, he asserted.
"However, the prospect of good economic times ahead and further interest rate reduction suggest that we should make provision for further good times in the housing market," Loos concluded.
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