The residential property market is expected to gradually
improve in 2010, Absa said on Monday.

This was due to better economic conditions, the lagged effect of lower interest rates and less tight credit conditions, Absa analyst Jacques du Toit said in a statement.

According to Absa’s latest house price indices, residential property prices declined marginally in nominal terms in 2009 compared with 2008.

“Prices declined in the first half of 2009, but started to rise on a month-on-month basis since May.”

Taking account of the effect of inflation, Du Toit said house prices continued to decline in real terms up to November last year, although at a much slower pace than earlier in the year.

“This was the net result of rising prices in nominal terms in the second half of the year, while inflation tapered off to lower levels during this period.”

Residential property transaction volumes increased further in the final quarter of 2009 after bottoming in the second quarter of the year.

The higher level of activity, as well as rising nominal prices towards the end of last year, came on the back of declining interest rates and the selective relaxation of lending criteria by banks, Du Toit said.

Middle-segment house prices were marginally down by a nominal 0.2 percent in 2009 (+4.1 percent in 2008), after increasing by 5.6 percent year-on-year to R1 010 700 in December.

In real terms, middle-segment house prices were down by 1.1 percent year-on-year in November and down 7.4 percent year-on-year in the first 11 months of the year.

Du Toit said South Africa appeared to be out of recession after real annualised gross domestic product (GDP) growth of 0.9 percent was recorded in the third quarter of 2009, with growth estimated to have been around 1.5 percent in the fourth quarter.

“The economy is expected to improve further during the course of 2010 and record real GDP growth of about 2.5 percent this year.”

“With inflation forecast to be under upward pressure in the near term, interest rates are expected to remain unchanged for most of the year before being hiked late this year in an attempt to keep inflation under control.”

Du Toit said the household sector was still experiencing some financial strain.

The ratio of household debt to disposable income remained relatively high at almost 80 percent, while real disposable income dropped further in the third quarter of last year in the wake of major job losses during the course of the year.

Real disposable income growth was expected to turn positive again towards mid-year while the debt ratio was forecast to remain relatively stable at just below 79 percent.

While the residential property market was expected to improve this year, the positive effect of the lower interest rates was set to diminish towards the end of 2010, Du Toit said.

House prices were forecast to rise by between six and seven percent in nominal terms in 2010, while in real terms, a marginal increase might be possible on the back of current projections for nominal house price growth and consumer price inflation. – Sapa

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