National house prices forecast to grow 8%

GROWTH in the value of houses is set to beat inflation again this year.

Analysts on average forecast 8% nominal growth — or 3% real growth after inflation has been stripped out — which is similar to the growth experienced over the past two years.

It could take five years before the nominal growth rate returns to double digits, they said.

Last year house prices grew 7.2% and 6.8% the previous year, but still fell far short of the staggering growth achieved in the early 2000s. Prices grew 30% in 2004, 25% in 2005 and 12% in 2006 before slowing with the advent of recession.

Consumer price inflation (CPI) was measured at 5.8% year on year in the latest release by Statistics SA and economists expect the figure to fall to about 4.5% this year, which would be good for house prices.

While the cost of living for consumers is expected to fall this year due to lower fuel and food prices, giving them room to spend on housing, experts are concerned this respite will be temporary. House price growth could weaken more rapidly next year when the oil price and other costs rise again.

FNB household and property sector strategist John Loos is optimistic and forecasts national house price growth of 8.7% this year.

"The general mood in the residential property industry is positive, and so it should be.

"The market is far from booming, but has shown a nice solid performance over the past three years since 2012," he said on Tuesday.

Various factors favour residential property, according to Absa Home Loans property analyst Jacques du Toit. Further global economic expansion and an increase in local demand were expected to help the South African economy grow by a real 2.4% this year, he said.

Expectation that the prime interest rate will remain unchanged until September — when an increase of 25 basis points is foreseen to curb the effect of an expected rise in inflation in the second half of the year — should also boost house prices.

"Against this background, the residential property market is set to show another relatively solid performance in 2015," Mr du Toit said.

Ronald Ennik, principal of Christie’s International Real Estate-affiliated Ennik Estates, is less optimistic about house prices improving that strongly.

"Following the financial crisis-driven dip and subsequent flat line in residential property from 2008 through 2010, the market has been on a steady, if unspectacular, growth path that is now close to topping out," Mr Ennik said.

He said house prices had been declining steadily over the past three years and growth of 6% could be more realistic than the market consensus. "The property market really does respond to confidence. Eskom’s electricity supply and maintenance problems really have rocked us. The electricity problem will be with us for a while and I think it will follow through to weak business confidence and affect the housing sector."

Mr Ennik expected the Western Cape to fare the best, followed by Gauteng. "The Western Cape is insulated to a degree. It gains attention from more foreign buyers than other provinces and has been more expensive than Johannesburg for a while. But overall, I’d expect the easing of house price growth to be felt around the country."