Absa - real house prices to fall

A third consecutive year of real house price declines is forecast for this year, Absa property analyst Jacques du Toit said on Tuesday.

"Nominal house price growth in the middle segment of the market slowed down to less than 1% in 2012 from almost 2% in 2011. In real terms, house prices deflated for the second consecutive year. Further real house price deflation is projected for 2013 on the back of expected low nominal price growth and headline consumer price inflation forecast to average around 6% this year," he said.

He noted that house prices in the middle segment of the market performed as follows at provincial level in 2012 -ranked in order of price performance :

1. Northern Cape: 10.7% higher in nominal terms (4.8% in real terms)
2. Limpopo: 5.2%
3. Eastern Cape: 3.9%
4. Mpumalanga: 3.2%
5. Western Cape: 2.6%
6. North-West: 2.1%
7. Gauteng: -0.6%
8. Free State:-1.7%
9. KwaZulu-Natal: -2.1%

Du Toit said the cost of having a new middle-segment house built, was up by a nominal 4.8% in 2012? after rising by 4?9% in 2011.

The average nominal price of a new house was up by 5.1% to a level of about R1,591,600 last year. This came to real price deflation of 0.5% in the past year after adjustment for inflation.

The average nominal price of an existing house was about R1,037,800 in 2012 (up by a marginal 0.3% in nominal terms, but down by a real 5.1% from 2011). This made it R553,800, or 34.8%, cheaper to have bought an existing house than to have built a new house in 2012.

"Based on current trends in and prospects for the economy and the household sector, the outlook for the residential property market this year remains subdued," he said.

"Factors such as the performance of the economy, growth in employment and income, living costs, interest rates, consumers' credit-risk profiles, banks' risk appetite and lending criteria, and property running costs are set to remain important with regard to the affordability of property. These factors, in conjunction with the aspect of consumer confidence, will determine the showing of the residential property market this year, which will be reflected in demand and supply conditions, market activity, buying trends, transaction volumes and the demand for mortgage finance," he concluded.

(I-Net Bridge)

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