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Freelance Mycophagist

South African Market Stalls...

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Residential property stops in its tracks

Gordon Bell

01 February 2008

Lack of affordability puts the brakes on house price growth - latest figures.

JOHANNESBURG (Reuters) - South African residential house prices were unchanged for the second month in a row in January as higher interest rates dent affordability, a survey showed on Friday.

The monthly Standard Bank property gauge put annualised house price growth last month at 0.0 percent, reflecting a general slowdown in the demand side of the economy.

"The weakness prevalent in the residential property market is a function of the deterioration in the affordability of housing," the bank's property economist Sizwe Nxedlana said.

"The affordability of residential property, in turn, has been adversely affected by the surge in house prices, which commenced in 2003 ... (and) was exacerbated by the increases in interest rates since July 2006."

South Africa's central bank left its repo rate at 11.0 percent on Thursday, noting signs that consumer spending was cooling in response to previous increases, and that economic growth may be easing. The decision follows eight increases totalling 400 basis points since June 2006 to combat rising inflationary pressures.

The higher rates helped to tame a four-year bull market that pushed property prices sharply higher.

Nxedlana said that due to the elevated prices and increased rates, the average instalment on a mortgage covering the full cost of a property was about 30 percent more than 20 months ago.

A new credit law aimed at clamping down on excessive bank lending was also impacting on demand.

"There is evidence that the increased rigour in the granting of credit, as a result of the National Credit Act, is curtailing the demand for residential property and contributing to the softening of house prices," he said.

But, still positive -- although slower -- economic growth could support the market and provide a floor for residential prices.

"As a result, in the short term, low growth will be recorded with the potential of negative year-on-year growth in some months, mainly as a result of base effects," Nxedlana said.

South Africa's economy has expanded by around 5 percent for the past three years, but expected slower global growth, weaker household spending and an electricity crisis in likely to drag growth down this year.

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......annualised house price growth last month at 0.0 percent...............................

......with the potential of negative year-on-year growth in some months.......

Given their inflation rate is somewhere between 6 & 9% depending on measure things are in something of a reversal already!!

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Yip, exactly. I was discussing the real fall of 7.9% pa with a bull I know - it was a completely new concept for him! :blink::lol:

but then again with 351% gain realised from 1996-2007 (Economist) it's easy to see how bubbles can be seen as more of history in a parallel universe than a cycle of reality ;)

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