property prices had slowed to 6.5% in June when compared to the same
period the year before - the lowest since January 2003, economist Elna
Moolman said on Wednesday at the release of Standard Bank's Quarterly
"Deceleration in the local housing market now seems firmly entrenched
and there will be very little, if any, growth towards the end of the
year as we consolidate around current high levels," she said.
However, she added that the property market was not close to a boom-bust
scenario and said house prices had now entered a stabilising phase.
Moolman said she anticipated inflation in South Africa would continue
to rise until the first quarter of next year and that a 0.5% rise in
rates would be seen at each of the next two Monetary Policy Committee
"House price growth should decelerate to zero and then growth should
pick up again in the middle of next year and approach 10% growth per
year," she said.
Group economist Goolam Ballim said housing was immensely poignant at
this time as we entered the beginning stages of a tightening monetary
However he poured cold water on the belief that affordability constraints
would lead us into a potential 1998 or early '80's meltdown scenario.
"The level of insolvencies is at an equivalent level to that seen
20 years ago and the economy is twice as big. We are nowhere near a
systemic risk," he said.
"In 1998 we had a dire situation where rates went as high 25.5%
and we had 62% indebtedness, plus no anticipation of tightening to act
as a pre-emptive cushion," said Ballim.
He said a 200 to 250 basis point increase in rates now would be quite
an extraordinary shock, equivalent to the 400 basis points seen in 2002,
adding "there was a low probability this would happen."
Moolman said a 2% stress test had been conducted on the Standard Bank
model and this could be absorbed in the economy.
Ballim added that the reserve bank had been telegraphing the increase
in rates for some time and acted tough by going to 50 basis points (on
June 8) and that this was also different to the way it happened in 1998.
He said 2002 (where rates rose 400 basis points) was mild and did not
tip the economy over.
An interesting trend noted by Moolman was that there had been a sharp
decline in demand from investors.
"In 2005 investors could recover 82% of their instalment with rental
income, and this is now only two-thirds in 2006," she said.
Standard Bank's research indicated fewer investors entered the buy-to-let
market in 2005 than in 2004 since their yields had been declining on
the back of slower rental growth and higher instalment.
"Responsible consumers should start to slow down as they can't
afford to chase higher house prices," said Moolman.