House price growth to stay subdued

Jan 10 2013 15:26
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Soweto-house, suburb, johannesburg

The search for affordability in housing remained a priority in light of the ongoing financial pressure for many households.(File) (Shutterstock )

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Johannesburg - The end of the major strike disruptions of late-2012 should lead to some better economic growth quarters early in 2013‚ however‚ the reality is that we have approached and gone into 2013 on a very weak economic footing‚ John Loos‚ FNB’s household and property sector strategist said on Thursday.

“We expect house price growth for the year 2013 as a whole to be slightly more subdued than 2012‚ and pencil in nominal average rise of 2.5% for the year‚” Loos said.

“Given that consumer price inflation looks set to be more around 5% to 6% this year on average‚ that would imply further “downward correction” in real price terms (when house prices are adjusted for CPI inflation).

He highlighted certain recurrent issues such as the ongoing financial pressure for many households‚ an overhang of the credit boom of last decade‚ which would lead one to expect that the search for affordability in housing remained a priority for many.

In addition‚ above inflation increases in municipal rates and utilities tariffs were set to remain problematic for home owners‚ and this could also exert some pressure on house prices‚ especially on the higher priced and larger sized end of the market.

Although Loos said further economic weakness could lead to further interest rate reductions‚ recent years have suggested that the South African Reserve Bank was reluctant to cut‚ and any downward movement in rates (such as the lone rate cut in July 2012) was likely to be almost insignificant.

“Finally‚ the upside of expected very low price growth in 2013‚ for future aspirant investors at least‚ is that we would expect yields on housing to broadly increase further‚ as they have been doing gradually since after the boom years‚ slowly improving property’s attractiveness as an asset class‚” Loos concluded.

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