Houses becoming less affordable - economists

In 2003, one house buyer paid R950 000 for a comfortable, single-storey house on Bellevue Road in Sea Point. Just one year later, the buyer sold the same house for R2 750 000 - pocketing 190percent profit.

It's not an unusual story in Cape Town, where real estate prices have soared for the past five years.

In the Sea Point area, a home bought in 2001 for R550 000 can sell today for more than R1,8-million. In Green Point, the same home would probably fetch more than R2m.

But economists say the market could change. Economic indicators suggest housing prices are levelling off. Growth will continue, but not as it has been at the astronomical rate of 20 percent a year.

They say the market can no longer support this level of growth, adding that between 1999 and 2004, the average price of a home in South Africa shot up from R232 000 to R575 000.

Rising at twice the rate of wages, housing has also become less affordable for the average South African.

"The housing market is playing catch up with people's expectations," said Andrew Golding, chief executive of the Pam Golding Property Group.

He said the cost of housing could decrease if fewer people were prepared to pay the high costs.

The concern echoed by some economists, however, is that the housing boom could collapse if fewer people bought homes.

Absa economist Jacques du Toit believes the affordability of housing has come under pressure because prices have risen too sharply.

In the mid-1980s, a similar period of extended growth came to a sudden halt when the housing bubble burst, shaking the economy.

Based on an Absa Group Limited report, the "worst possible economic shock for the housing market is believed to be that of a sharp oil price increase, which could bring about global recessionary conditions, as well as rising domestic inflation and interest rates".

But Du Toit believes this is unlikely.

He predicts that low interest rates and rising foreign investment will cushion the decline as house prices begin to taper off.

"We don't foresee that prices in Cape Town or anywhere else will collapse.

"The market is cooling off, but there will be no collapse," he said.

Meanwhile, reports that SA's residential market has performed stronger than anywhere else in the world over the past few years - particularly along the coast.

According to real estate agents, prices have been driven upward by investment from abroad, particularly from Europeans and Americans buying second homes.

But despite this, Seeff area specialist Peter Simmons said the growth rate along the coast had reached the top of its arc and price increases were not reaching the levels recorded over the past three years.

  • This article was originally published on page 4 of Cape Times on June 13, 2005

Article by: Robbie Brown and Brett Meager -