Land prices to shore house prices
Land prices, which account for about 30 to 40% of house prices, are going to be the main factor that will support property prices, argues Jacques du Toit, Absa's property economist in the bank's quarterly report.

On a house of R1,5-m, 40% (about R600 000) of this relates to the price of land.

The report says in line with the booming residential market over the past five years, the nominal price of residential land in SA also increased sharply from an average of R67 700 per stand in the first quarter of 2000 to around R240 000 in the second quarter of 2005.

Du Toit notes that this was an increase of 250% in total, or 25% per annum over this period. "In real terms, this came to growth of 168% in total or 19% per annum," adds Du Toit.

He also notes that in the second quarter of 2005, nominal growth in residential land prices was 39% year-on-year after reaching a peak of 46% in the third of last year.

"Suitably and properly serviced for residential development has become scarce, particularly in the rapidly growing metropolitan areas of the country," says Du toit. "This has probably contributed to the strong growth in land and property prices during the past few years."

He warns that with the robust demand for housing, particularly in urban areas, land price increases will not abate. As a result property prices generally should be underpinned.

Article by: Chris Nthite - www.moneyweb.co.za