FNB - Property market will slow

Johannesburg - First National Bank said on Monday that economic growth was expected to pick up after a 0.6% contraction in the first quarter of 2014, but rising interest rates would still slow down the property market.

As the economy contracted, role players in the residential property sector seemed quite happy, the bank's household and property sector strategist John Loos said in a statement.

This was because they had the "nice problem" of not having enough stock to sell.

"However, we believe that ultimately this sector of the economy cannot defy economic gravity," Loos said.

Prime rate

"Interest rates are abnormally low, and the Reserve Bank has indicated that it believes that we are now in the hiking phase of the interest rate cycle."

FNB forecast a very mild interest rate hiking cycle where the prime rate ended the year at 9.5% and 2015 at 10.25%.

"Despite this expectation of further interest rate hiking, though, we still forecast a 2015 real economic growth improvement, from a dismal 1.5% forecast rate for 2014 to 2.5%," he said.

The forecast was based on the assumption that strike action disruptions would be less severe next year, while Eskom would in part alleviate its supply capacity shortages.

Reduce investor

"Such supply side improvements are expected to contribute to a reduced current account deficit, with the government also expected to play ball by reducing its own deficit and borrowing requirement," Loos said.

The improvement was expected to reduce investor jitters and strengthen the average dollar/rand exchange rate.

This would in turn assist moving consumer price index (CPI) inflation lower towards the 3 - 6% target range towards 2015.

The implications for the household sector and residential market were that credit lines would negatively impact slightly, with insolvencies expected to grow by 1.4% in 2014 and 7% in 2015.

This would follow the substantial decline in insolvencies that took place in 2013.

Real house price

Homes were expected to average 13.6 weeks on the market before being sold in 2015, compared to 11.9 weeks before 2014.

Loos said: "Under such conditions of gradual decline in demand, average house price growth is not expected to fall through the floor, but merely to slow, after averaging 7.3% for 2014, to 5.7% in 2015," Loos said.

"With a slower CPI inflation rate expected in 2015, compared to this year, that would still imply a slight positive real house price growth rate of 0.6% in 2015, following on 1.9% in 2014."

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