Prospects for house price growth in 2014 satisfactory

As so often happens, says Mike van Alphen, National Manager for the Rawson Property Group’s bond origination division, Rawson Finance, the latest Absa house price review has stimulated speculation as to where the residential property market is heading.

“Those who watch these figures closely have tended”, said van Alphen, “to focus on the 9,3% year-on-year third quarter growth (a significant drop from the 11,4% of the second quarter) in the medium house segment, where the average price now is R1,172,000. The question now being asked is, ‘Will this decline in value continue?’”

The answer to this question, said van Alphen, is in part provided by the Absa Review itself when it says that South Africa’s economic growth rate in 2014 will probably rise by 0,8% to 2,8%, while inflation, now at 6%, will stick close to that level at 5,8%.

“House price growth,” said van Alphen, “is always affected by a whole range of factors impacting on the consumer’s financial position: low economic growth in the country, low savings, impaired credit records and diminished financial confidence. However, if one looks at the broader picture, then two factors become detectable in most housing economy reviews and these are that house price rises, except in exceptionally negative economic conditions, tend at least to keep pace with the national economic growth rate and with the inflation rate. Indeed in most years the house price growth will be a few percentages ahead of the inflation rate, which is one of the reasons why investors find this asset class so satisfactory.”

“While no one would call South Africa’s current or projected growth rate stimulatory, it will at least be better than it has been recently – which augers well for house prices.”

In conclusion, therefore, said van Alphen, although a small further drop in house price growth is just possible before the end of this year, the prospects, in his opinion, remain reasonably bullish.

“2014 will, I believe, see house prices continue to rise by over 8% and this should encourage people to be investing now because in today’s market that sort of return is fairly satisfactory.”

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