Property pain to continue

Early forecasts point to another disappointing year for property.

There was nominal growth of 2.2% last year in middle-segment home values, down from 7.3% in 2010, said Absa Home Loans.

Interest rate cuts of 450 basis points in 2009 provided stimulus to the housing market, contributing to prices rising by more than 7% in 2010. But interest rates were cut by 150 basis points in 2010, and remained unchanged in 2011.

Jaques du Toit, senior property analyst at Absa Home Loans, said that this, together with rising inflation, relatively high levels of debt, damaged credit records and tight labour market conditions, weighed on consumers and confidence levels during the last year. This affected demand for housing and mortgage finance as well as house price growth.

Driven by increasing food prices, transport costs and property running costs, headline consumer price inflation was on an upward trend throughout 2011, rising to above 6% year-on-year late last year. This caused house prices to deflate by a real 2.7% in 2011.

Du Toit said that the average real price of middle-segment houses, calculated at constant 2008 prices, was, in November, almost 14% below its peak of August 2007.

Based on the outlook for the global economy and domestic growth, inflation, interest rates and the consumer sector, house price growth is forecast to remain relatively low this year.

John Loos, household and property strategist at FNB Home Loans also projected a dull year for the sector.

Loos said the 2012 residential market showed strong supply relative to demand, and a mediocre economic performance at best. There were no clear indications to suggest that this would change radically.