Credit Act, rate hikes cut growth in house prices
Median house price growth plunged to 5,7% year on year last month from 10,4% in July as the National Credit Act took hold, according to the Standard Bank Residential Property Gauge.

Standard Bank senior economist Johan Botha said yesterday the act, implemented on June 1, was affecting growth in house prices by slowing down bond applications.

The act requires banks to check the overall credit exposure of borrowers before approving any new loan.

Botha said many financial institutions had an increase in bond applications in May, before the act came into force .

Applications for bonds had now dropped off.

The South African residential property market has been slowing down in any event since its peak near the end of 2004.

House price growth peaked at more than 35% at the height of the residential property boom in late 2004.

Since then the trend has steadily declined, as the relatively expensive property market caused demand to drop off.

Botha said the bank expected median house price growth of between 5% and 10% for this year. He expected even more of a decline from these percentages in the first quarter of next year.

The bank said the higher end of the residential property market had experienced a tightening of financial conditions, adversely affecting activity.

Standard Bank said the “financial landscape of households” had also changed with the hike in interest rates last month.

“Mortgage repayments have increased by 30% since June 2006,” said the bank.

Botha said economic growth had slowed to 4,5% in the second quarter of this year, but that the macroeconomic environment remained “relatively resilient”.

“This implies that house price increases are likely to remain in positive territory, but in single digits over the medium term.”

Botha said a further tightening of monetary policy by the Reserve Bank next month could “change the financial environment and thus the outlook for the house market adversely”.

Property economist Francois Viruly, of Viruly Consulting, said the market was seeing property investors “shifting slightly downwards” in the type of properties they could afford.

“This can only be normal considering the hike in interest rates, the National Credit Act and the pressure on the inflation rate.”

He concluded that “although the middle (housing) market might find it somewhat more difficult at present, the lower end of the market should continue to show very significant growth”.

Article from: