More Bad News for the SA Property Market

June House Prices Down

An article published on the Reuters Africa website yesterday indicates that South African median house prices fell by 11.3% year-on-year in June, put under even more pressure by higher interest rates and tougher credit laws.

Sponsors of the survey, Standard Bank said that house prices peaked in June last year as the impending implementation of the National Credit Act (NCA) fostered uncertainty in homeowners and investors. The new credit laws came into effect that month in a bid to clamp down on excessive lending in the market.

Standard Bank’s monthly property gauge indicated the average house price to be R550 000 last month as compared to R620 000 at the same time last year. The five month moving average growth rate reflects a negative –7.8% and the demand for mortgages has been falling since June last year.

According to a spokesperson from Standard Bank, “This is due to a confluence of headwinds confronting the South African consumer. These include high interest rates and inflation, as well as additional hurdles of accessing credit brought about by the NCA. In our view, declines in the demand for property of this magnitude and duration are not inconsistent with national house price deflation”.

South Africa’s Reserve Bank has raised its repo rate by 500 basis points to 12% since June 2006 in an effort to curb inflation, but price pressures driven by rising food and fuel costs continue to build. The targeted CPIX (consumer inflation minus mortgage costs) raced to 10.9% year-on-year in May, which is the highest recorded level in over 5 years. All-items inflation was recorded at 11.7% and the higher rates have pushed mortgage payments up 36% over the last two years.

Standard Bank stated that the monthly data may have been distorted somewhat by high base effects, with many people rushing to finalise deals before the NCA came into effect in June last year, but the general trend was in line with the tough conditions that South African consumers faced.

The information in this article is courtesy of Reuters Africa (“S.Africa June property prices fall on high rates”, 1 July 2008).

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