South African house prices fell in March for the first time in eight years, with the average house price down to R550000 from R570000 in February.

Standard Bank’s Residential Property Gauge released yesterday showed the decline reflected a year-on-year decline of -5.2 percent growth in the average pricing of residential properties.

Residential property prices last saw a brief decline of -2.5 percent in June 2000.

But, the bank said, the market was simply correcting itself.

Sizwe Nxedlana, an economist at Standard Bank, said the residential property market was going through a period of softer pricing conditions, with a substantial decline in demand for properties.

Nxedlana said that data from the South African Reserve Bank on new mortgages granted and re-advances showed that after peaking at R40-billion in June 2007, the market had halved to about R20- billion.

He said: ‘‘The reduction in demand in turn is due to substantial reduction in affordability brought on by inflation, which is eroding household disposable incomes.

‘‘Higher interest rates lead to higher installment payments, and the fact that property prices have also gone up since 2004 have made residential property too expensive.

‘‘Affordability seems to have deteriorated even in a declining interest rate environment between 2004 and 2006.”

Nxedlana said that the latest bout of tighter monetary policy had lowered the affordability of houses. Between 2004 and 2006, the increase in house prices had exceeded the growth of household incomes, he added.

‘‘As a result, we are seeing a sharp falling off in house price growth as a healthy correction in house prices to levels more in line with fundamental drivers such as employment and improved incomes, and SA’s GDP growth.

‘‘In the short term it seems that property prices could continue to record low growth until the South African economy begins to improve again,” Nxedlana said.

Article by: Xolile Bhengu - www.sundaytimes.co.za