Residential markets in the Free State and Northern Cape performed slightly better than those in the bigger provinces during 2008's third quarter.

According a house price index compiled by FNB using Deeds Office data, the Free State achieved house price growth of 7,6% year-on-year (y/y) during the third quarter. If the Motheo region (Bloemfontein and its surrounding areas) is excluded, the rural house price index rose by 9,7% y/y, which reflects that this index has performed better than the index for the province as a whole, says Albert Humphries, regional manager for the Free State and Northern Cape at FNB's home loans department.

He says this also applies to the Northern Cape, where annual price growth for the whole province was 9,4% in the third quarter. "The Northern Cape rural house price index grew by 12% if the Francis Baard region (Kimberley and its surrounding areas) is excluded."

The Free State yielded only 1,1% growth on a quarterly basis in the third quarter, while the rural index showed marginally higher growth of 1,3%. Growth of 2% was recorded on a quarterly basis for the Northern Cape as a whole while the rural index recorded 2,2%.

However, Humphries cautions that this doesn't mean that the housing markets in these two provinces are out of danger.

"Although these figures aren't completely comparable to FNB's national house price index, it seems as if rural regions such as the Free State and Northern Cape are slightly further behind the cycle than the larger metropolitan regions and are still performing well. It can also be ascribed to the fact that the stellar performance of resources in general, such as metals, coal, and oil, has played a supportive role in these economies and therefore also rural housing markets until a few months ago."

"However, resource prices have fallen drastically in recent times due to the world situation, and this could mean that these regions should prepare for tougher times," he says.

He says although mining comprises only 7,7% of the SA gross domestic product (GDP), it represents 25,5% of the Northern Cape's GDP.

Possible work losses in this sector can therefore adversely affect the region's economy and also on disposable income growth. This could exert further pressure on demand for residential property in the province.

In the Free State there's the gold industry in the north that's been under pressure for quite some time, maize farming and Sasolburg's economy that's being driven by synthetic fuels.

He believes the housing markets in the two provinces won't emerge unscathed and will have to wait like the rest of the national property market for further interest rate drops before relief is felt. – Elma Kloppers, Sake24

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24/12/2008