ABSA Report Q3

South Africa’s real economic growth slowed down to 2,1% at a

seasonally adjusted annualised rate in the first quarter of 2008 (5,3%

in the fourth quarter of 2007), mainly as a result of supply constraints

and lower levels of demand experienced in the economy.

Surging inflation, rising interest rates and slowing growth in real

household disposable income are adversely affecting the financial

position of households, causing consumer demand to taper off further.

House price growth in most segments and geographical regions of the

housing market slowed down further in the second quarter of 2008.

The average nominal price of affordable housing increased by 12,1%

year-on-year (y/y) to R283 200 in the second quarter of 2008 (14,5%

y/y in the preceding quarter). Real price growth came to only 1,0% y/y

in the second quarter, down from 4,3% y/y in the first quarter.

Nominal price growth of 4,7% y/y was recorded in middle-segment

housing in the second quarter of 2008 (8,2% y/y in the first quarter),

which caused the price of a house in this market segment to average

about R965 000 in the quarter. In real terms, prices declined by 5,6%

y/y in the second quarter (-1,5% y/y in the first quarter).

In the luxury segment of the market, house prices increased by a

nominal 8,8% y/y to about R4,4 million in the second quarter of 2008

(8,0% y/y in the preceding quarter). The average price of houses in

this category dropped by a real 2,0% y/y in the second quarter,

compared with a decline of 1,6% y/y recorded in the first quarter.

At a provincial and metropolitan level, nominal year-on-year house

price growth in the middle segment of the market was markedly lower,

with prices declining in some areas on an annual basis in the second

quarter of 2008. However, on a quarter-on-quarter basis, nominal

house price growth turned negative in most regions in all three

categories of housing (small, medium and large) in the middle

segment. If these price movements are calculated in real terms (after

adjustment for inflation), the current slowdown in the housing market

at regional level is even more pronounced. House price growth in the

second quarter was still relatively strong in the commodity-driven

provinces of the Free State, North West and the Northern Cape.

In the coastal areas, nominal house prices were up by an average of

4,2% y/y in the second quarter of 2008 (9,5% y/y in the first quarter).

The coastal property market has slowed down significantly on the

back of deteriorating economic conditions, as many properties in

these areas have been bought for investment and speculative

purposes in times when this market segment was growing strongly.

Nominal house price growth is forecast to be significantly lower in 2008

and 2009 compared with recent years, with prices set to decline in real

terms this year and next year. Economic conditions are expected to

improve in the second half of 2009 as a result of declining inflation and

lower interest rates. On the back of these expectations, nominal house

price growth is forecast to improve to levels of above 10% from 2010,

with real price growth expected to turn positive again in 2010.