Property Forecasts for 2006

Property and Home Loans News:

Property price growth is expected to continue its slow downward trend in 2006. The growth of property prices in South Africa dropped from record highs of around 30% in January 2005 to about 14% in December last year and economists are expecting that trend to continue into this year.

Although, a strong Rand and low inflation levels are indications of relatively low interest rates in the future, making home loans more affordable and thereby increasing the number of potential homeowners.

Speaking in an interview on the Moneyweb Power Hour show, economists John Loos and Jacques du Toit from FNB and ABSA explained that while they’re predicting the average property price growth to be about 10 or 12 percent, a cut in interests could see that number increase to 15% or more.

“I think one would acknowledge that there was a downward trend in price growth during the course of last year – from 30.8% in January, year on year, to 14.7% in December. We expect this to continue into 2006,” said Loos.

In late 2005, If you had asked most economists about their expectations for interest rates, they would have told you to prepare for a small increase. But after a lot of talk about interest rate hikes towards the end of last year, many economists are now expecting interest rates to be cut.

An interest rate cut has an enormous impact on the local property and mortgage markets.

If the Reserve Bank were to cut interest rates once more Du Toit believes that the psychological impact of will be significant.

“If that happens, I think one can look at a price growth of 12 to 15% – maybe even beyond that if it’s necessary,” Du Toit said.

Interest talk is boosting consumer confidence, people who might have been holding off, worried about higher interest rates, are now saying, “Let’s take the plunge”

And although a rate cut is unlikely to spark another property boom, it would mean that while consumer confidence is boosted the number of potential home owners would also increase.

Lower rates means cheaper home loans, and with home finance becoming more affordable the property market would experience a slight surge as the number of buyers increase.

Property Still A Good Investment

“I think property is always a good investment. And it’s not that we foresee the property market going down or collapsing or crashing – not at all. Prices are still going to increase, just at a much lower level, but I think it will be much more sustainable compared to what has happened over the past five years,” says Du Toit.

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