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Key risks to South Africa's housing market

         Date: 2012-03-07

           Tag: Africa market, Africa housing market

Summary: South Africa’s property market has slowed, with house prices declining modestly in 2011. South Africa’s house prices rose 2.3% in nominal terms.

South Africa’s property market has slowed, with house prices declining modestly in 2011. South Africa’s house prices rose 2.3% in nominal terms, which translates into a decline of 2.6% in real terms, a disappointment following 2.7% house price rises in real terms in 2010.

Long gone are the amazing boom years from 2000 to 2006, when house prices rose by an average of 20% annually. 

Riding on the back of an empowered middle class, the house price rises peaked in Oct 2004 with 35.7% growth (32.5% in real terms).  Then in Q1 2008 the boom ground to a halt, following the global financial crisis. 

By early 2010 house prices were briefly surging again, encouraged by South Africa hosting the 19th FIFA World Cup.  But they stalled again due to lower economic growth, rising inflation, and political corruption concerns.

ABSA predicts that average house prices will rise by around 2-3% in 2012 but, given continuing increases in inflation, house prices are now falling in real terms.

Key risks to South Africa’s housing market:

an uncertain economic recovery
declining infrastructure investment
more housing supply than demand, thus falling rental yields
financial pressures on households
rising mortgage interest rates, to counter rising inflation
political concerns, as president Zuma turns up the populism

Johannesburg is South Africa’s largest city and the centre of manufacturing, financial and economic activities, and home to Africa’s largest stock exchange.

The highest average house prices in South Africa are in North and West Johannesburg at ZAR 1,374,853 (US$170,644) in Q3 2011. Again, house prices are down on last year.


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