Residential property has it 'tough'

September 01 2008 at 11:59AM

Residential property is still in the doldrums, Standard Bank said on Monday in its monthly residential property gauge.

Standard Bank's median house price eased by 1,8 percent year-on-year in August, while the median house price in level terms was R550 000. The five month moving average growth was recorded at 7,7 percent year-on-year.

"After a period of mostly National Credit Act (NCA) induced volatility, Standard Bank's residential property index returned to normality during the last two months and presents a clearer depiction of house price trends, but is still reflective of the tough financial and economic conditions households face," Standard Bank said.

Tough conditions would remain for residential property until fundamental drivers of the market took a turn for the better, which may be some time off.

Recent monthly estimates of the growth in the Standard Bank median house price had overstated the extent of the decline in South African residential property prices.

This was the result of the NCA induced base effect that was established in the months leading up to the implementation of the Act last year.

"Uncertainty regarding the possibility of more stringent credit granting criteria led to an increase in the proportion of higher valued houses in the underlying home loans sample from which the median house price is calculated."

Subsequently, the reduced affordability of housing, exacerbated by higher mortgage rates, led to a decline in the demand for residential property and a substantial softening in house price growth, the bank added.

This was aggravated by the base effect, resulting in the deep negative year-on-year growth rates seen in May and June.

"The July and August outcomes are, in our view, a more accurate reflection of aggregate house price trends." - Sapa

This article is courtesy of the IOL website.

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