The prop­erty wealth ef­fect

Finweek English Edition - - Private banking -

THE BOOM­ING prop­erty mar­ket has be­come the pri­mary en­gine of wealth cre­ation for South Africa’s high net worth mar­ket. Av­er­age house prices have more than dou­bled since 2003, though the rate of growth has slowed to 8,9% for the year to Jan­uary from around 26% in 2003. By con­trast, the JSE Alsi 40 in­dex climbed 170% since 2003, helped by a 30% sprint over the past 12 months.

The dif­fer­ence is that more South Africans own prop­erty than own shares and res­i­den­tial prop­er­ties are lever­aged with bank fi­nance, while shares are bought with dis­cre­tionary sav­ings.

The latest Absa Prop­erty Trends news­let­ter shows nom­i­nal year-on-year growth in house prices picked up mo­men­tum in the early months of 2007 af­ter lev­el­ling off to­wards yearend 2006. Nom­i­nal house price growth ac­cel­er­ated to 15,4% in both Jan­uary and Fe­bru­ary this year in the mid­dle seg­ment of the mar­ket.

That brought the aver- age price of a house to R891 700 in Fe­bru­ary 2007.

“Month-on-month house price growth is tend­ing down­wards af­ter mov­ing higher be­tween July and Novem­ber last year. That – to­gether with a cur­rently grow­ing pos­si­bil­ity of higher in­ter­est rates in April – means house price growth is fore­cast to level off again later this year,” says Absa Prop­erty Trends.

The SA prop­erty mar­ket ap­pears to be at

Av­er­age house prices have more than dou­bled

since 2003.

the rel­a­tively early stages of re­cov­ery af­ter a nearly two-decade slump. That’s re­flected in the rate of res­i­den­tial fixed cap­i­tal for­ma­tion to GDP, up to 2,1% from an his­tor­i­cal low of 1,3% in 1999. That means since 1999 fixed in­vest­ment in res­i­den­tial build­ings is grow­ing faster than GDP.

“ Th­ese trends in res­i­den­tial fixed cap­i­tal for­ma­tion since 2000 aren’t only a re­flec­tion of in­creased in­vestor ac­tiv­ity and higher de­mand for owner-oc­cu­pied hous­ing over that pe­riod. They’re also a re­sult of house price growth of about 20%/year and around 14,5% in real terms, caused by the strong de­mand for hous­ing,” says Absa.

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