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House price growth continues to slow down

Johannesburg - December 2013 saw year-on-year growth in the average value of homes in the middle segment of the South African housing market slowing down further, after peaking around April last year, according to  Jacques du Toit property analyst at Absa Home Loans

This was the result of base effects and continuing month-on-month price growth of less than 1% up to year-end. Economic conditions in general, as well as trends in household finances and consumer confidence have also affected the property market and property price growth during the course of the year.

These trends in house prices are according to the Absa house price indices, which are based on applications for mortgage finance received and approved by the bank in respect of middle-segment small, mediumsized and large homes.

Average nominal year-on-year price growth was in single digits in all three middle-segment categories of housing in 2013.

The average nominal value of homes in each category in December last year:

- Small homes (80m²-140m²): R778 000;

- Medium-sized homes (141m²-220 m²): R1 085 000;

- Large homes (221m²-400m²): R1 720 000

The country’s economic performance was under pressure during 2013, with real growth estimated to have been 1,8% on the back of major production losses as a result of labour strikes, while growth in consumption expenditure remained low.

Based on expected trends in global growth and prospects for the domestic economy, growth in the country’s real gross domestic product is forecast to rise to 2,7% in 2014.

Consumer price inflation slowed down to 5.3% year-on-year (y/y) in November as a result of a drop in fuel prices and lower food price inflation. However, domestic fuel prices edged up again in both December and January on the back of movements in the rand exchange rate and international oil prices, which will cause inflationary pressures.

Consumer price inflation is forecast to average 5.7% in 2014. Based on the outlook for the economy and inflation, interest rates are forecast to remain unchanged until the third quarter of 2015 before being hiked.

The residential property market will continue to be driven by economic developments and trends in household finances and consumer confidence.

Single-digit nominal house price growth is forecast for 2014, while real price growth will be constrained by consumer price inflation which is expected to be just below the 6% level for the year. Continued low interest rates will support the housing market and the demand for mortgage finance.

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