Add South Africa to housing victims list

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When the Economist warned in 2005 that residential property prices were in bubble territory in many national markets, South Africa led the list by far with an eight-year price appreciation of 244%. Now it seems that bubble has popped too.

The South African website Fin24 says that data from South African banks shows that the outlook for residential property in South Africa is dim. Prices were still rising at a rapid clip this time last year. Now they are down over 10% in the last year.

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Data released by banks and other residential property players over the past few days suggests that the outlook for the housing market has taken a sharp turn for the worse.

In January this year most property analysts were still debating whether or not house price growth will dip below 10% in 2008. At the time, most banks and estate agents were still reporting double-digit growth and the possibility of house prices actually dropping this year was dismissed as a highly unlikely scenario.

But figures released by leading mortgage originator ooba (ex-MortgageSA) earlier on Monday show that house prices have already started to fall. These figures add further support to growing evidence that SA’s housing slump may be far deeper and wider than generally anticipated.

The price correction is particularly evident at the lower end of the market. Saul Geffen, CE of ooba, says the group’s data shows that the average price of a property bought by first time buyers has fallen 4.9% over the past 12 months, from R548 800 in June 2007 to R521 600 in June 2008.

Geffen says most of that decline has occurred in the past month with prices dropping from R542 400 in May 2008 to June’s R521 600, a decline of 3.8%. The average price of all property purchased according to ooba’s research has dropped 1.7%, from R807 000 in June 2007 to R793 600 in June 2008.

These figures follow the release of Standard Bank’s monthly property gauge last week, which shows that median house prices dropped 11.3% in June. Twelve months earlier in June 2007 Standard Bank’s median price index was still rising at 18.8%.
Fin24, 7 Jul 2008

Given that the slowdown in South Africa coincides perfectly with the slowdown in other global property markets, it is obvious that property markets around the global have been intricately linked in the past number of years. Clearly, global liquidity found its way to all parts of the globe during the bubble years, sending residential property prices into the stratosphere.

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Now that the credit funding those huge rises in residential property has been removed, housing prices are falling.

Update 8 Jul 2008 744EDT
Related post – South Africa Heading for a Recession, Moody’s Says – Bloomberg

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