South African brace for R1m average house price

South Africans are bracing themselves for the price of an average home hitting R1m in 2008 as the property market continues its steady march higher.

Linda Rall, Provincial Sales Manager at ooba, South Africa's leading bond originator that places one in five South Africans in their homes, says looking at the recent trends in house price data from the ABSA House Price Index, it is likely that the average price of a home in SA will top R1m in 2008.

Nominal house price growth of 15.5% year-on-year (y/y) was recorded in April from a revised 15.7% in March, according to the latest Absa House Price Index.

This brings the average price of a house in the survey to R911 800 in April 2007.

A 10% increase from this level over the next year would see average prices hit just over R1m by May 2008.

"We are definitely in a golden era of South African property as house price growth continues unabated. The rate of increase has cooled from the heady days of 2004, but there are still double digit increases that are providing long term investors with an exceptional wealth creating opportunity.

"South African economic growth remains strong, more people than ever are entering the property market and the country is growing in popularity as a tourist and property investment hotspot."

Rall says that while higher values have priced some people out of the market, others are sitting on their hands hoping for a better opportunity to buy.

"Unfortunately, they are likely to be disappointed - the best time to buy property always seems to be last year. Potential house buyers should not waste time and get onto the property ladder as soon as possible."

Rall says that an analysis of house price gains from the year 2000 serves to make the point - and illustrate the power of compounding returns.

"If an investor bought a house for R500 000 7 years ago, the value of that house would now be worth an amazing R1 747 000, a return of 250%.

"If we look at the breakdown of house prices gains each year since the turn of the millennium according to the Absa House Price Index, we see yearly gains of:

Year House price increase 

2000 17.1%

2001 14.2%

2002 15.2%

2003 21.2%

2004 32.3%

2005 22.7%

2006 15.3%

"These returns soon add up and shows the 'miracle' of asset price growth when returns are made on returns.

"Even if South African property prices rise at ten percent for the next 7 years, house prices will double."

Hello ooba news

The implementation of the National Credit Act in June this year caused a slowdown in mortgage approvals as banks and applicants adjusted to the new regulations - but now SA's leading originator reports that approvals are returning to pre-NCA levels.

South Africa's largest property listings website has reported a surge in viewings of traditional holiday hot spots as more buyers shortlist homes through online searches ahead of arriving on vacation to see them.

The property market's rapid price escalation has cooled in the last year on the back of higher interest rates and the short term effects of the National Credit Act (NCA), but these factors are conspiring to provide a 'sweet spot' for buyers says SA's leading bond originator.

Property is a worthwhile investment but for younger people hoping to buy it is difficult to take the first step, but not impossible says Rhys Dyer, Chief Executive of ooba, South Africa's leading bond originator that places one in five South Africans in their homes.

"Rather invest in simple, streamlined furniture," she says. "Try to have pieces that have legs and are not boxy. Not only will you have created space but also the functionality of the room improves as well."