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Sa Housing Prices to see 12-15% growth 2006: FNB   Article Date :17 Jan 2006 Comments from new FNB property economist John Loos. South Africa's residential house prices should see a deceleration in growth to between 12% and 15% in 2006, from an estimated 20% in 2005, according to new FNB property economist John Loos. (I-Net Bridge) Writing in a research report released on Monday, Loos said he expected a "soft landing" in the residential property market in the new year following several years of robust growth, with a price collapse in the sector unlikely despite rising fears of oversupply due to the strong pace of new residential development. In 2005, Loos noted, South Africa's housing boom had moderated, given fewer cuts in interest rates, a gradually rising household debt service ratio, and a slight tapering off in real disposable income. On the supply side conditions were changing as well, with real fixed investment in residential property having risen sharply and the value of building plans passed and completed rising at over 50% y/y (as at October 2005), indicating ongoing strength in fixed investment in the sector going into the fourth quarter of 2005. "The result of mildly flagging demand growth and significantly stronger supply of new housing stock has been a gradual slowing in the rate of increase in residential property prices since about a year ago," observed Loos. "It is in such times of slowing growth that the questions surrounding sustainability are usually asked - are we heading for a soft landing or is it a 'crash'?" He pointed out that, even though some figures in the property market had reached the extreme levels seen in 1984, just before the country's biggest-ever market crash, the South African economy was now 53% larger than in those years. At the same time, while the current level of residential development growth was similar to 1984 levels, as a percentage of GDP it was now far lower than 21 years ago, and therefore appeared to be far more sustainable. It was not unrealistic to expect new residential development levels to be sustained, and even to post positive growth for the rest of the decade, Loos believed. Regarding house prices, he noted that they had overtaken peak 1984 levels, but in terms of affordability the situation was far better at present than prior to the crash. This was because the average house price-remuneration ratio remained lower than 1984, while the repayment value on the average-priced house as a percentage of average salaries was as much as 50% lower than the 1984 peak. "These key ratios give one the impression that the most recent housing price and residential property fixed investment boom has been nowhere near as extreme as the one of the early 1980s, which ended in tears." Loos did not entirely rule out the possibility of a crash, however, saying that much depended on the economy going forward. However, the outlook for stable interest rates and steady economic growth meant that the chances for a property crash were lower than in the past. "...This time around the fundamentals appear far more sound, and while 2006 will probably be a slower growth year, positive growth should continue, both in residential property prices as well as new residential development and upgrades," he concluded. CLICK HERE TO RETURN TO THE MAIN NEWS PAGE