HOUSING MARKET TO SLOW FURTHER

South Africa's housing market is likely to slow further after the South African Reserve Bank (SARB) voted to increase the repo rate by 50 basis points to 10% after its latest Monetary Policy Committee meeting.
The rise is likely to lead to commercial banks raising their rates by the same margin to a level of 13.5%.
Interest rates have been hiked by a total of 300 basis points since mid- 2006.
Absa, the country's largest mortgage lender, said in its reaction that the affordability of housing, especially for first-time buyers in the low- and middle-income groups, will be negatively affected by the latest hike in interest rates.
"Consumers' spending power has already been eroded by higher fuel and food prices over the past number of months. In the first seven months of 2007, nominal year-on-year house price growth averaged 15,4%, but is expected to slow down further in the remaining few months to average around 14% for the full year," it said.
Mortgage advances growth, which declined gradually from as high as 30.9% year-on-year in October 2006 to 27.2% in June 2007, is forecast to slow down further towards the end of the year, taking into account the current interest rate cycle, the possible effect of the National Credit Act, and expected slower growth in house prices over the short term, ABSA said.
However, Allister Long, MD of property services consultancy, Powerhouse Financial Services, said the hike is unlikely to have an immediate impact on the property market.
"The impact will only be felt in the long term with property prices increasing at a much slower rate. The economy is already slowing down as there is a visible decrease in property price growth rate and the latest interest rate hike has placed added pressure to this."
Property prices are not expected to decrease, however there will be a burgeoning gap between the prices of existing properties and new developments, he added.
"Existing property prices will continue to increase at much slower rates. However the prices of new houses will increase as the cost of resources escalates. With all the commercial building that will be taking place, such as the building of the Gautrain and the stadiums for 2010, labour and material costs will become scarce and obtaining them will come at a premium."
Rental prices are also expected to increase as investors will be paying more on their bonds.
"Rental prices generally fluctuate along with the interest rate making this more of a buyer's market than a renter's one," said Long.