News Article - 2006: "SA property expensive? You ain't seen nothin' yet!
'If you thought you should be concerned about the small role that foreign buyers of South African property play in driving up prices, you should be far more concerned about Government's 6% per annum real economic growth target,' says property strategist for FNB Commercial Banking, John Loos, speaking at the launch of FNB Private Clients in Cape Town today (Wednesday, 29 March).
The mathematics of property demand in the residential market in recent years is astounding, and there is little evidence to suggest that the residential side of the property boom was driven by much other than strong domestic economic growth and sharply lower interest rates.
In the final quarter of 1998, Loos estimates that around 1.027 million households in South Africa could afford the 'average priced house' at the time, with the prime rate in the final quarter of that year averaging 16.9%. Should the average house price not have changed from 1998 until the end of 2004, 2.79 million households would have been able to afford such a residence.
The drivers were solid household income growth, sharply lower interest rates benefiting a highly credit-driven market, and a decline in the average size of household. There was not a way that the building industry could keep up with the demand for new units, and there was only one way for prices and that was sharply upwards.
He states that the structural switch from high to low interest rates is not quite over yet, and further mild reduction in interest rates is expected, on top of real economic growth moving between 4% and 5% per annum for the rest of the decade.
'Expect the number of households coming into the formal housing market to continue to rise steadily, and don't be too surprised if house price inflat"