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Slowdown likely in nominal house price growth

Feb 05 2016 15:26
Carin Smith

Cape Town - Nominal year-on-year growth in the average value of middle-segment homes in the South African residential property market remained in single digits in January 2016, according to Jacques du Toit, property analyst at Absa Home Loans.

He pointed out on Friday that there was a recent gradual rising trend evident in price growth in two categories of housing analysed in the latest Absa house price indices.

"Despite challenging economic conditions that affect consumers, such as rising inflation and interest rates, the uptick in price growth in some segments of housing was largely the result of the base effect of slowing price growth a year ago," he explained.

In real terms - that is after adjustment for the effect of headline consumer price inflation - price growth remained low in the middle segment of the market.

READ: 'Twin terrors' faced by residential property market

Price growth in middle-segment small and medium-sized homes improved on a nominal year-on-year (y/y) basis in January 2016, whereas growth in the large category started to slow down after an upward trend up to late last year.

In real terms, house price growth was below 1% y/y in the small and medium-sized categories in 2015, with real price growth of 1.6% y/y registered in the large segment. Continued real price deflation was evident in the small category up to the end of last year.

The average nominal value of homes in each of the middle-segment categories in January 2016 was R904 000 for small homes (80m²-140m²); R1 281 000 for medium-sized homes (141m²-220 m²) and R1 957 000 for large homes (221m²-400m²).

The outlook for the residential property market in 2016 is one of subdued growth against the background of expected low real economic growth of only 0.9% this year, low employment growth, rising inflation and higher interest rates, according to Du Toit.

READ: Brace for slowdown in property sales, house prices

Since early 2014 interest rates were raised by a cumulative 175 basis points, with further rate hikes forecast during the rest of the year on the back of expected ongoing inflationary pressures.

"The headline consumer price inflation rate is projected to average above the 6% level this year, with prime lending and variable mortgage interest rates, currently at 10.25%, forecast to end the year at 11% per annum," said Du Toit.

"These factors will lead to increased financial strain on consumers and homeowners and will contribute to low consumer confidence."

The outlook for nominal house price growth is to slow down from just above 6% in 2015 to 5% this year, with the risk for price growth to the downside against the background of trends in and prospects for the economy and the household sector.

"Based on expectations for nominal house price growth and consumer price inflation, some real price deflation is projected for 2016," cautioned Du Toit.

ALSO READ: Watch the 'selling to emigrate category' - property expert

(Source: Absa)

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absa  |  sa economy  |  house prices  |  property

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