S.Africa's House market is not a bubble
- From: WWW.AfricanCrisis.Org
[ABSA is the biggest financier of home loans in South Africa. Whether its
a bubble or not remains to be seen. Many people have said a market is not
a bubble... until it had already fallen a great deal.
I think interest rates are unbelievably low and that has fuelled the
house prices unbelievably.. If interest rates were to rise, there could
be a problem. Jan]
Cape Town - South Africa's residential property market is not in a bubble
but is rather headed for a soft landing, according to Absa.
Commenting on the outlook for the local housing market, Absa Group chief
economist Christo Luus said the bank believed that, although house price
growth had slowed in the past six months measured in year-on-year terms,
the market was not headed for a crash.
Prices will continue to taper off
House price increases were expected to continue to taper off for the rest
of 2005 and 2006, but would nevertheless record positive real growth for
2005, the sixth year in a row for real residential property market
According to Luus, the year-on year (y/y) growth in house prices had
slowed after average price increases of more than 30% were recorded
during most of 2004.
"The current downward trend in house price growth can probably be
ascribed to the fact that housing has in general become less affordable.
This is taking into account the high level of house prices and salary and
wage increases of well below 10% in 2004," he noted.
Household debt increasing
"Mildly lower interest rates during the past twelve months, which caused
household debt servicing costs to increase, also contributed to housing
becoming less affordable.
"As a result, buyers appear to start showing some resistance against high
asking prices, with indications that the difference between asking and
selling prices has increased, while properties remain longer on the
market before being sold."
Luus said that although some analysts had expressed concerns that the
residential property market was in a bubble, Absa would not regard the
market, overall, as being in a bubble.
Major economic shock
However, he added, it was important to emphasise that, irrespective of
whether or not there was a bubble, a house price crash could always occur
should there be a major economic shock.
"However, Absa's baseline economic forecast for 2005 is one of relative
stability in domestic economic growth and interest rates, albeit also one
of mildly slowing growth as the year progresses."
Against this background, a soft landing appeared likely for the housing
market, with the property boom also having a broadly positive impact on
the economy in general.
Factors such as the rising cost of household debt servicing relative to
disposable income and slowing real disposable income growth were
impacting on the affordability of housing.
Still, he said, taking into account projections of lower nominal growth
(not lower prices) as well as the inflation prospects for 2005, real
house price growth for the year was nevertheless expected to be
Edited by Adrienne Taylor