Improved property price index in November (FNB), but not enough to stimulate real improvement in residential investment
Tuesday, 1st December 2009The FNB house price index increased by 2% y/y in November 2009, the first increase since November 2008. The consumer inflation rate slowed to 5,9% which means real house prices are still declining. As at October, real year on year house price deflation was -6,5%. The outlook for house price growth in 2010 has certainly improved on the back of an increase in the SARB leading business indicator, lower consumer inflation and an improvement in gross domestic product in the 3rd quarter of 2009. FNB revised their forecasts for house prices from an expected average of 5% for 2010 to between 7% and 8% (nominal), or by between 2% and 3% in real terms.
The outlook for private sector residential construction has not changed for 2010, still expected to be extremely depressed given the slowdown in new residential construction approvals, while real growth in house prices of less than 5% will not be sufficient to stimulate new housing developments. However, the outlook for 2011 is slightly more optimistic, pending further developments in lending rates, property prices and possible tax implications in the 2010 Budget that will affect consumer affordability and disposable income. The focus for residential investment will most certainly shift from up market housing developments, to multi unit affordable - lower value, higher volume - type developments. Opportunities presented in social housing construction should also not be marginalised, wit over R40 bn earmarked for spending during the next three years.
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