HOUSE prices recorded their lowest nominal month on month growth since 1999 in August, mortgage lender Absa said today, with growth expected to slow further in the next year.

Property prices in SA have soared by over 200% since 1997, fuelled by low interest rates, but the country’s largest retail bank said the boom was coming to a natural end as houses have simply become too expensive.

"The market is definitely cooling off," Absa senior economist Jacques du Toit told Reuters. "The most important factor is affordability - housing has become relatively expensive."

Absa said house prices rose by a nominal 0,6% in August compared to 0,9% in July - the lowest month on month growth since September 1999. In real terms, month on month growth was zero.

Nominal house price growth in the year to August was 19,2%, compared to 21,4% in the year to July. Absa said annual growth would likely fall to 5%-10% in 2006, when house prices might even begin to fall month on month.

Most seriously impacted was the luxury end of the market, where new building and rapidly rising prices in recent years have led to a fall off in demand for properties on sale. Growth in the sector was already only 4% year-on-year and prices could be falling by the year-end, du Toit said.

At the same time, monthly mortgage repayments and the monthly income needed to qualify for a mortgage were 13,8% higher in August than a year earlier, further impacting on affordability of housing — although still well below their year on year peak of 26,8% in December 2004.

"I don’t think this is a crash," said du Toit. "What we’re seeing is not because of anything in the macro economy. This is just a natural development because of the rapid price rise."

Article ftom: www.businessday.co.za