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New houses are cheaper, says Absa

By Staff Writer


From Business Report
November 15 2007
By Roy Cokayne

A new house was 1.9 percent cheaper than an existing house in the third quarter of this year, according to the latest Absa quarterly residential property perspective. Absa’s average price of an existing house is R950 900, compared with R932 900 for a new house.

“This development may be a reflection of tightening market conditions with regard to new housing and is related to … trends in building costs and competition in the house building sector,” it said.

The report said the cost of building a new house increased by 9.8 percent year on year in the third quarter, from 11.9 percent in the second quarter.

The lower growth rate in building costs in the third quarter could probably be ascribed to the recent softening in the housing market, Absa said, resulting
in fiercer competition among developers and contractors.

Remuneration data for the first quarter of this year, the most recent available data, showed that the ratio of house price to remuneration increased further in the quarter.


In addition, the ratio of mortgage repayments to remuneration lifted more quickly since the middle of last year.

Increases in these two affordability ratios implied that house prices and mortgage repayments were rising at a faster rate than remuneration, which meant housing was becoming less affordable, Absa said.

Absa forecast that higher interest rates, together with the possible effect of the National Credit Act on mortgage advances and total credit extension, would have a dampening effect on the residential property market towards the end of this year and into next year.

It forecast house price growth of 14.5 percent for this year and 10 percent for next year, adding that these forecasts reflected the tighter monetary policy conditions, a slower pace of economic expansion, lower growth in real household disposable income and the effect of the National Credit Act.

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