South Africa's house prices head up

Absa says residential property values are improving after a year of falling prices - latest report.

After at least a year of falling house prices, South Africa's residential property values have started heading up. That's according to Absa, which has been tracking house prices closely since the 1960s.

House prices ticked up by 2,6% in October, compared to same time last year. This is a little higher than the revised figure for September of 1,3% year-on-year, according to Absa's calculations.

Standard Bank's view of the housing market isn't as rosy. Its figures, released earlier this week, show that we are at the bottom of the market and prices should pick up from next year.

Each bank uses a different way of assessing house prices. Absa looks at an average house price (middle segment: R991 200), while Standard Bank looks at a median house price (half are more expensive, half are cheaper; R553 300). FNB also has a house price index.

The broad message from the three banks is the same: the worst is over for now for the residential housing market, thanks largely to lower interest rates.

Although Absa's figures show improving house price performance, the percentage growth is lower than inflation, which is not good short-term news for investors.

Property sales volumes, meanwhile, have also picked up.

Jacques du Toit, senior property analyst for Absa, said: "The latest trends with regard to house prices are encouraging, which are based on

a further rise in transaction volumes in October, compared with September. This came after transaction volumes appear to have bottomed in August this year."

Du Toit said the South African economy is showing signs of improvement, another positive for property. The year 2010 is set to be much brighter for property sellers than this year, though the final loss for property owners is set to come in around 1,5% compared to 2008 - not as bad as initially projected for 2009.

"Despite massive job losses recorded in the third quarter of 2009, there are indications from various economic indicators, such as the South African Reserve Bank's leading and coincident business cycle indicators, that the economy is on its way to recovery. Although the household sector is still very much under pressure on the back of declining employment, while real disposable income growth is negative territory, housing market conditions are expected to improve further towards the end of the year and into 2010," said Du Toit.

"Better economic conditions, as well as banks' less tight lending criteria and the lagged effect of lower interest rates, will provide much needed support to the property market during the course of the next twelve months. Taking account of house price trends in the first ten months of 2009, nominal price deflation of less than 1,5% seems possible for the full year compared with 2008," he said.

Du Toit reckons average nominal house price growth of up to 3% in 2010 is attainable if the latest trends prove to be sustainable.

"Real (taking into account inflation) price deflation of around 8% is forecast for 2009, while prices may decline further in real terms next year on the back of nominal house price and inflation projections," he said.

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