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Demand for property not affected by rates rises

The residential property sector has been affected by rising interest rates, but not nearly as much as expected.

The emerging black middle class, together with a strong economy, are some factors that play a role in the ongoing demand for property, even when interest rates are climbing the ladder everyday.

Absa is South Africa’s largest home loan lender, and expects price growth to level off later this year as overall inflationary pressures could cause interest rates to increase further. February this year proved that even though homebuyers are focussing on smaller and cheaper properties, demand for property was still obvious. The nominal house price growth was 15.4% year on year in the middle segment of the market, which was in line with a revised growth rate of 15.4% in January. On average, the price of a house in this segment of the market was about R891 700.

Absa is expecting growth in house prices to be a bit lower than the 15.2% it was last year. Seeff Properties chairman, Samuel Seeff, believes house price growth will be stronger than 15% and says that February was yet again their greatest selling month, and areas such as Bantry Bay and Clifton in Cape Town reached very high selling prices.

Property is becoming more expensive as the demand in the construction industry is becoming greater. The preparations for the 2010 Fifa World Cup and the building of the Gautrain high-speed rail link also affects the building industry and the cost of building has gone up greater than inflation.

Higher interest rates are not having the impact everyone was expecting, as South Africans become accustomed to rising interest rates and accept it a bit easier. People are earning more money and more people are realising the value of investing in property, so the chain of demand never stops. Buyers might just settle for something cheaper or smaller than what they had in mind, but the property’s still selling.

In 2002, interest rates reached an ultimate high of 17%, and still there was little effect on the residential market. So why should we see a great impact now?

Original Article: Business Day, 15 March 2007