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Prop Trends 56_HPI _Jun 06_.pub

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					                                                  Property Trends
Authored by:                       Absa House Price Index                                                                    5 July 2006
Jacques du Toit
Senior Economist
                                   House price growth lowest in 4½ years
Published by:
Absa Group                         According to the latest Absa House Price Index, nominal year-on-year growth of 13,6%
Economic Research                  was recorded in June 2006 compared with a growth rate of 14,3% in May (also see sec-
                                   tion below on changes to the Absa House Price Index). This was the lowest year-on-
2nd Floor—South                    year growth since January 2002 when it was also 13,6% and brought the average price of
Absa Towers North                  a house in the middle segment of the market (see explanatory notes) to about R798 000
180 Commissioner Street            in June. The average nominal year-on-year growth in house prices came to 15,3% in the
Johannesburg                       first six months of 2006.
2001
                                   In real terms, year-on-year growth of 10% was recorded in May compared with a growth
PO Box 7735                        rate of 11,4% in April, based on the headline consumer price index. This was the lowest
Johannesburg
                                   real year-on-year growth since March 2003 when it was 9,2%. The average real year-on-
2000
                                   year growth in house prices came to 11,6% in the first five months of 2006.
Tel: +27 (11) 350-7246
Fax: +27 (11) 350-7252             On a month-on-month basis, nominal growth in house prices was down to 0,6% in June
E-mail: jacques@absa.co.za         compared with a growth rate of 0,7% in May. Real month-on-month growth of only 0,1%
                                   was recorded in May this year.
This report is also available on
the Internet at http://            Based on an average mortgage interest rate of 10,87% in June this year, the monthly mort-
www.finforum.co.za/absa and        gage repayment on a 100% mortgage on a house of R797 930 in June was R8 166, calcu-
http://www.absa.co.za              lated over a period of 20 years. This was 16,3% higher compared with May 2005. The
                                   gross monthly household income required to qualify for the abovementioned mortgage of
Explanatory notes:                 which the monthly repayment does not exceed 30% of income, was R27 219 in June 2006.
The Absa House Price Index is
based on the total purchase        CPIX inflation increased to 4,1% in May on the back of a weaker rand exchange rate and
price of houses in the 80m²-       an international oil price which is still around the level of $70/barrel. CPIX inflation is pro-
400m² size category, valued at     jected to rise further to a level of about 6% by year-end. The deficit on the current account
R2,6 million or less in 2006       of the balance of payments was a massive 6,4% of GDP in the first quarter of 2006, which
(including improvements), in
respect of which loan applica-
                                   contributed to the rand depreciating significantly against the major international curren-
tions were approved by Absa.       cies. Year-on-year private sector credit extension remained high at 22,7% in May, with
Prices are smoothed in an          mortgage advances growth still at a level of 30% compared with a year ago.
attempt to exclude the distort-
ing effect of seasonal factors     Against this background, interest rates are forecast to rise further by 50 basis points at
and outliers in the data. As a     each of the remaining MPC meetings in August, October and December this year. This
result, the most recent index      will bring the prime interest rate and variable mortgage rates to a level of 12,5% at year
figures may differ materially      end. As a result of these expectations, house prices are projected to increase by about
from previously published          12% year-on-year in nominal terms this year.
figures.

Disclaimer:                                     Absa House Price Index                              Absa House Price Index (nominal, 2000=100)
The information in this publica-                                                                              2002    2003    2004    2005    2006
tion is derived from sources       3.5                                                        40
                                                                                                   Jan       122.5   144.8   183.8   240.6   281.6
which are regarded as accu-
                                   3.0                                                             Feb       123.6   147.3   189.0   244.3   284.4
rate and reliable, is of a gen-                                                               35
eral nature only, does not                                                                         Mar       124.7   150.1   194.0   247.9   287.0
                                   2.5
constitute advice and may not                                                                 30   Apr       126.0   152.8   198.9   251.6   289.4
be applicable to all circum-       2.0                                                             May       127.8   155.4   203.7   255.1   291.6
stances. Detailed advice                                                                      25   Jun       129.9   157.8   208.6   258.4   293.4
should be obtained in individ-     1.5                                                             Jul       132.1   160.2   213.9   261.4
ual cases. No responsibility for                                                              20   Aug       134.3   162.6   219.2   264.4
any error, omission or loss        1.0
sustained by any person acting                                                                     Sep       136.5   165.5   224.4   267.7
                                                      Nominal m/m % change (left)
or refraining from acting as a     0.5                                                        15   Oct       138.5   169.0   229.1   271.2
                                                      Nominal y/y % change (right)
result of this publication is                                                                      Nov       140.5   173.4   233.3   274.8
accepted by Absa Group Lim-        0.0                                                        10   Dec       142.6   178.4   237.1   278.3
ited and/or the authors of the      Jan-02   Jan-03    Jan-04          Jan-05        Jan-06        Ann ave   131.6   159.8   211.2   259.7
material.
Absa House Price Index                                                                                                                  5 July 2006

Changes to the Absa House Price Index

In 2004, South African residential property prices increased by a massive 32,2% in nominal terms, while another
22,9% increase was recorded in 2005. In the first six months of 2006, nominal house price growth came to 15,3%
year-on-year.

As a result of the continued increase in house prices, it was decided to adjust the upper cut-off price for residential
properties in the middle segment of the market (houses of between 80m² and 400m², priced up to R2,6 million in
2006 – previously R2,2 million) for the purpose of calculating the Absa House Price Index. This decision was based
on the fact that, by keeping the upper cut-off price for the middle segment constant at R2,2 million for too long, an
increasing number of properties at the upper end of this market segment are migrating to the luxury category, which
may cause the average price of houses in the luxury category to decline.

In its analysis of house prices in South Africa, Absa differentiates between three broad categories of housing. These
categories are the affordable housing market (houses of between 40m² and 79m², priced at up to R226 000 in 2006
— previously R193 000), the abovementioned middle segment of the market and the luxury market (no size limits,
but priced at above R2,6 million in 2006 – previously R2,2 million). The monthly Absa House Price Index analysis is
based on the abovementioned so-called middle segment of the market, in respect of which loan applications were
approved by Absa (also see the explanatory notes on the previous page).

Against this background, the upper cut-off price for properties in the middle segment of the market was revised from
R2,2 million for 2004 to R2,4 million for 2005, while it was increased to R2,6 million for 2006. These adjustments to
the upper cut-off price in both 2005 and 2006 resulted in higher index values and year-on-year growth rates as from
2005 (see graphs below), as more properties of a higher value are now included in the middle market sample. How-
ever, in order to prevent a sharp decrease in the sample size of luxury properties, the upper cut-off price of this cate-
gory was increased from R8,2 million for 2004 to R8,9 million for 2005, and to R9,5 million for 2006.



                                 Absa House Price Index                                                    Absa House Price Index growth (nominal)
                     320                                                                        40

                     300
                                                                                                35
                     280
                                                                                                30
 In d ex 2000= 100




                                                                              y/y % ch an g e




                     260

                     240                                                                        25

                     220
                                                                                                20
                     200
                                                                                                15
                     180                      Old index   Revised index                                    Old index    Revised index

                     160                                                                        10
                        Jan-04       Jan-05                 Jan-06                                Jan-04                Jan-05               Jan-06




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