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Property - no bubbles here

24 January 2006 Angelo Coppola

Dr Kees Bruggemans, chief economist at FNB, says that in terms of bubbles, property prices are very high, with what seems to be a doubling of property prices since 2001, the issue is the replacement value.

This is anchored on the CPI and labour costs, and includes the building cost index, and this shows that here is a gap developing, when one includes land prices, which shows a faster acceleration.

He maintains that house prices have remained well anchored in replacement costs, including land prices, while the building margins have increased. This level of margin is dependent on the same positive conditions prevailing.

If an economic air pocket is flown into, then the builders margins may well come down. There is some air in the builders margins and this could be squeezed.

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