The property wealth effect
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
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.