Leading South African property experts say 2007 may be the low water mark before prices start increasing again in 2008, albeit at a more subdued pace than the heady heights of 2004/05.
Property experts Christo Luüs from Absa, SA's biggest mortgage lender, and John Loos from FNB, say that while 2007 should see slower and lower property growth, a turning point northwards should come in 2008 as the interest rate cycle potentially turns.
"At best we could have cheaper property in 2007, but the market should still average 8-9% and then from 2008 onwards we should be back in double digits," says Loos.
Chief economist from Absa, Luüs, says that property growth is "still strong" at 12.7% year-on-year (y/y) at last count according to the Absa House Price Index, but that "there has been easing", pointing to higher inflation as an inhibiting factor.
According to Loos factors that will start stirring the market once again will be when interest rates potentially come down in 2008 and as economic growth continues at current strong levels.
"There is also the possibility of a supply side crunch because there is a lot on the plate for the commercial sector and it will remain this way for the rest of the decade," he adds.
Luüs points to the fact that in 2004/05 there were stages when South Africa experienced property growth of more than 30%. "However, we can expect a slowdown in 2007 as potentially inflation will remain a problem in the first half of 2007 and we shouldn't see any real increases," he explains.
"This should be the situation for most of 2007 - at least for the residential sector where we should see some consolidation," he points out.
"As we move into an environment of slightly lower interest rates, possibly at the end of 2007 - although we think mid-2008 - we could see it pick up again," says Luüs.
"There should still be strong growth in certain types of property in 2007, but overall prices should ease," he adds.
"In some areas there could actually be a decline, but not in general terms. We should see a single-digit bottoming in nominal terms, picking up later in 2007. Then when interest rates potentially move lower, we should get more growth," explains Luüs.
"I don't think we will easily see the high growth rates of 04/05 unless the correction is to such an extent to justify it," concludes Luüs. Loos concludes that better performances in 2007 could come lower down in the price ranges.
"The lower end is where the action will be. It's difficult to make an exact cut-off, but around R1,5 million rand and up should grow the slowest," he states.
Nominal house price growth in South Africa has been in a downward phase for the past two years after peaking at 35.4% year-on-year (y/y) in October 2004, according to Absa research.
Standard Bank's House Price Index for November registered house price growth unchanged at 8% y/y, coming off a low base of just 2.9% in September.
A potential interest rate increase in the new year will add to the 200 basis points accumulated in 2006 during the current tightening cycle which began in June, and many analysts expect this to be the last rate hike in the cycle.
Written by
Evan Pickworth - I-Net Bridge