Real Estate News – South Africa - Residential prices continues to slow

The increases in residential real estate prices continued to slow during the course of 2006, the South African Reserve Bank said.

The year-on-year rate of increase in the prices of residential property in the middle segment of the market, as measured by Absa, decelerated uninterruptedly from 35.5% in September 2004 to 13.6% in August 2006, the SARB noted in its latest quarterly economic bulletin.

The month-on-month rate of increase in house prices fell below 1% in March 2006 and declined to only 0.8% in August - the lowest growth rate in just over five years.

At the same time, banks' mortgage advances continued to grow apace. The bulk of the mortgage advances granted continued to be in respect of existing buildings, with less than 10% of the total amount granted in the first half of 2006 flowing to the construction of new buildings, the SARB added.

The SARB noted that the year-on-year rate of increase of property prices in the luxury market segment declined to below 10% from the second quarter of 2005, and continued to slow further in the first half of 2006.

The year-on-year rate of increase in residential property prices in the affordable houses category remained at a high level in 2005, before decelerating significantly in the second quarter of 2006.

Progressively higher monthly repayments on new mortgage bonds, due to rising house prices and an increase in mortgage rates from June 2006, together with the prolonged period during which growth in property prices has exceeded growth in remuneration, may partly explain the slowdown in growth of property prices, the SARB said.

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