Nick Wilson
5 September 2008
Johannesburg — ALTHOUGH the Reserve Bank kept interest rates on hold last month, this has brought little relief to the embattled residential property market with the latest data showing real house prices dropping 9,6% year on year in July, the biggest real price drop in almost 16 years.
It seems the effect of the high interest rate and inflation environment was still working its way through the property sector.
Absa Bank's latest house price index delivered this latest data to the market and also indicated that the deterioration in the residential market was set to continue until next year when interest rates were expected to be cut.
A real price drop of 7,7% was recorded in June.
In nominal terms, there was slight growth in house prices of 1,7% year on year last month.
This was the lowest nominal growth in more than 15 years.
Jacques du Toit, senior property analyst at Absa Home Loans said yesterday the further drop in real prices and major slowdown in nominal growth showed the "effect of economic developments on the property market".
Du Toit said the deterioration was "largely expected" and that the bank expected the "poor conditions" to continue into next year. "Only after interest rates are cut do we expect the property market to bottom and start recovering gradually," he said.
He said that only in 2010 did the bank expect nominal price growth to move into double-digit territory.
Du Toit said this would be growth of just more than 10%.
Berry Everitt, MD of real estate agency group Chas Everitt International, said the 10% drop was part of the "normalisation of the property cycle" considering that house prices had grown more than 100% over the previous five years.
"Anybody who bought their house more than two years ago is still going to make money if they sell their home, even in this down market," said Everitt.
"This would only really negatively effect people who bought in the last 12 months, who intend selling in the current market."
Chris Renecle, MD of Johannesburg-based developer Renprop, said that from a development point of view the residential market was "very slow".
"I've been in the property industry for 16 years and it's the quietest it's ever been as far as residential property development is concerned," he said.
Meanwhile, the newly-developed First National Bank (FNB) house p rice index, which was also released yesterday, confirmed a similar trend, recording a nominal 2,3% year-on-year price inflation last month, compared with 3,5% in July.
The FNB h ouse p rice index showed that on a month on month basis price deflation had already been in progress for six consecutive months.
In real terms, adjusting the index for inflation using the CPI, year-on-year price deflation amounted to -8, 8% last month.
FNB property strategist John Loos said there had also been a "deterioration in sentiment" which had also "probably increased emigration selling".
Loos said minority groups were a "little concerned over the change in ANC leadership", the Eskom electricity problems in January and the continuing Zimbabwe crisis.
"These factors have dented sentiment and increased emigration selling," he said.
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We spoke of this when the rates were going up and were told nooooo,that won't happen,well here it is in front of me in black and white.