The rich are getting richer and the poor poorer

26-03-2003

The current boom in house prices has done nothing to benefit South Africa's poorer home-owners.

A survey by property economists Rode & Associates reveals that real house prices in the lower-priced suburbs are still suffering from a lack of demand, and that house prices in the below R350.000 suburbs have continued their dismal performance of the last 10 years.

"Two factors are probably at play here. Firstly, the residents of these suburbs are not excessively exposed to the economy's cycle. And, secondly, the secular downward trend suggests a structural change is taking place in this price class, with the lower middle class getting poorer. The divide between South Africa's rich and poor is just deepening," says Rode CEO Erwin Rode.

"Of some comfort though is that it seems that the negative trend in lower-priced homes has been halted, for the time being, with real prices moving sideways for the last 2½ years."

By comparison, real house prices in the upper- and middle-priced suburbs of South Africa's main cities have been booming since 1999 under the influence of an economy growing at a healthy pace. However, the exuberant real growth now seems to be coming to an end as higher- and middle-priced house prices started to decelerate under the pressure of higher interest rates in quarter 2002:2. This was to be expected, especially since mortgage interest rates rose by 3% points from the end of 2001 to quarter 2002:2.

Rode expects that this weakening effect on house prices will continue, especially after a further 1%-point interest rate hike followed in quarter 2002:3.