Despite the expectations for lower interest rates and inflation, the outlook for the South African residential property market in 2009 remains bleak, senior property analyst at Absa, Jacques du Toit, says.

Levels of activity are set to stay subdued up to the second half of the year while prices in the middle segment of the market may decline by as much as 2.5 percent in nominal terms this year.

A further real decline in house prices of up to eight percent is expected in 2009, based on projected consumer price inflation trends and a drop in nominal prices, he said.

Lowest price growth since 1996

The Absa House Price Index, released on Friday, showed nominal annual average house price growth in the middle segment of the market slowed down to below four percent in 2008 which was the lowest price growth recorded since 1996.

Prime and mortgage interest rates are forecast to be cut by a cumulative 300 basis points during the course of 2009 to reach a level of 12.5 percent by year-end, mainly as a result of declining inflation during this period.

Despite expectations of lower inflation and interest rates, economic conditions are expected to remain depressed for most of the year. Real economic growth of below one percent is projected for 2009 after estimated growth of around three percent in 2008.

1.5% real disposable income growth in 2009

Growth in real fixed capital formation is expected to be barely positive this year while growth in real final consumption expenditure by households will also be low compared to previous years, resulting from employment levels expected to come under further pressure and real household disposable income growth projected at only 1.5 percent in 2009, down from an estimated 2.7 percent in 2008, he added.

Du Toit added that in respect of the various categories of housing (small, medium and large housing in the middle segment as well as affordable and luxury housing), activity levels and prices are expected to remain under pressure well into 2009.

"All of these categories of housing are forecast to bottom in the second half of the year and to pick up gradually towards year-end, with levels of activity and prices only to markedly improve from 2010 onwards," he concluded.

I-Net Bridge