The South African residential property market still performing well

Demographic, economic and socio-economic factors are driving the strong growth that has been experienced since 2000 in both the rural and metropolitan sectors of the South African housing market, says Jacques du Toit, Absa senior economist, after the release of the banks 2nd Quarter 2007 Residential Property Perspective.

"Urban lifestyles, traffic congestion, technol0ogical progress and changing urban conditions have prompted people to change their living trends, with an increasing number moving to remote rural and coastal areas.

"These changes in lifestyle are having a profound effect on property markets in both metropolitan and rural areas. The combined effect of these factors caused the demand for housing to increase significantly over this period. As a result, the growth in property prices increased to levels not seen since the boom of the early 1980s."

Du Toit added that the process of urbanisation has contributed to faster population growth in the metropolitan than in the rural areas, impacting on the demand for housing in the major urban areas.

"Housing in the rural areas has become less affordable than in the metropolitan areas, to a large extent as a result of lower and slower-growing household income in rural areas compared with the major urban areas", he said. 

On the outlook for the housing market, he pointed out that recent negative trends on the inflation front will put upward pressure on interest rates, which may influence house price growth. As a result, "nominal house price growth is likely to average 13,1%, or 7,2% in real terms this year, compared with a nominal growth rate of 15,3%, or 10,2% in real terms recorded in the previous year."

Du Toit predicts that in 2007 the housing market will be driven by a combination of factors, which include:

* The availability and cost of serviced land for residential development.

* Building costs increases and inflation trends.

* Interest rate movements.

* The overall performance of the economy.

* Growth in the real disposable income of households.

* Trends in household debt levels.

* The affordability of housing.

Du Toit noted that the salient trends in the South African housing market during the first quarter of 2007 include:

*  An average increase of 18,1% year-on-year in nominal house prices in the affordable segment (houses of between 40m and 79m, valued at up to R370 000).

* An average increase of 15,5% year-on-year in nominal house prices in the middle-market segment, which comprises houses of 80m to 400m, priced at up to R 2,7 million.

*         An average increase of 7,6% year-on-year in nominal prices of houses in the luxury segment. This segment comprises houses valued at between R2,7 million and R9,9 million.

*         At a provincial level, nominal year-on-year growth in house prices in the middle-market segment varied from 5,2% in Kwazulu-Natal to 28,2% in the Northern Cape.

*         In major metropolitan areas, nominal house price growth varied from 9% year-on-year in the Durban/Pinetown area to 26,1% in the central and southern parts of Johannesburg.