Residential property in the red

In March residential property prices, as measured by the Standard Bank median house price index, entered negative territory, the bank said today. For the first time since a temporary decline of -2.5% year-on-year in June 2000, the median house price for March was recorded at R550 000. When compared to the median house price for March 2007 of R580 000, year-on-year growth in the median house price for March was -5.2%.

This outcome brought the five month moving average growth rate to 0.2% year-on-year. In the past five years, the country witnessed a boom in residential property prices his was assisted by strong fundamentals such as high and sustained economic growth, lower inflation, and lower interest rates. "The surge in house prices between 2003 and 2006 were thus a predictable response to the fundamental drivers of residential property."

"Nevertheless, analysis suggests that the increase in prices that prevailed over the last five years may have exceeded what the fundamentals would justify," the bank said. Standard Bank pointed out that reduced housing affordability had lowered demand.

The stagnant house price growth that SA experienced since December 2007 was due to a noticeable contraction in the demand for residential property, which could be traced back to the second quarter of 2007, it said. "This has become increasingly apparent in lower transaction volumes in the mortgage market. According to Reserve Bank data, new mortgage loans and re-advances for dwellings and flats have seen substantial declines," Standard Bank said.

Mortgage grants and re-advances for residential property peaked at a level slightly below R40- billion in May 2007, the month preceding the implementation of the National Credit Act. This figure declined to R29.6 billion in November 2007. By December 2007, new mortgages granted and re-advances for residential property stood at R20 billion, half the peak value recorded seven months earlier. - Sapa