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Johannesburg - The residential property market is set to show another relatively solid performance in 2015, according to Jacques du Toit, property analyst at Absa Home Loans.
"Nominal middle-segment price growth of around 8% is forecast, which will translate into real price growth of more than 3% this year, based on projected consumer price inflation of 4.5%, which is in line with real price growth of the past two years."
The average value of middle-segment homes in the South African residential property market has shown relatively strong growth over the past two years up to the end of 2014, according to the latest Absa House Price Index.
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The Absa house price indices are based on applications for mortgage finance received and approved by the bank in respect of middle-segment small, medium-sized and large homes.
"Nominal price growth came to 10% in 2013 after relatively poor growth in the preceding year, with price growth of around 9% recorded in 2014," said Du Toit.
In real terms - that after adjustment for the effect of consumer price inflation - annual house price growth of between 3% and 4% was registered in 2013 and 2014.
"The house price performance came despite some challenging economic conditions experienced over this 24-month period, such as declining economic growth, low employment growth, a depreciating exchange rate and rising inflation and interest rates, which affected household finances," explained Du Toit.
"However, a situation of normalisation and more balanced housing demand and supply conditions are believed to have largely contributed to the price growth of the past two years."
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The average nominal value of homes in each of the middle-segment categories in December 2014 was:
- Small homes (80m²-140m²): R876 000;
- Medium-sized homes (141m²-220 m²): R1 201 000;
- Large homes (221m²-400m²): R1 837 000.
(Source: Absa)
Economic and property market outlook
"Some further global economic expansion and an uptick in local demand is expected to result in the South African economy growing by a real 2.4% in 2015, after estimated growth of 1.4% in 2014," said Du Toit.
Headline consumer price inflation was below the 6% level up to late 2014, impacted by lower food price inflation as well as declining fuel prices on the back of significantly lower international oil prices.
"Against this background, inflation is expected to drop to a level of 3.6% year-on-year (YoY) by mid-year, after which it is forecast to rise to around 6% YoY by December on the back of base effects, a possible rebound in oil and fuel prices in the second half of the year and a depreciating exchange rate," he said.
Consumer price inflation is projected to average 4.5% in 2015, averaging above 6% in 2016.
Interest rates were hiked by a cumulative 75 basis points in 2014, with the prime interest rate ending the year at 9.25%. Based on expected declining consumer price inflation in the first half of 2015, the current forecast is for the prime rate to remain unchanged up to September when a 25 basis point hike is foreseen to curb the effect of rising inflation in the second half of the year.
Interest rate hikes totaling 75 basis points are forecast for 2016 in an attempt to temper inflationary pressures during next year. The prime rate is projected at 9.5% by end-2015 and 10.25% by the end of 2016.
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