Property is suffering its worst activity levels since 2004... first-time buyers now only make up 16 percent of the market and 75 percent of properties are selling below their asking prices. All of this sounds like the property cycle has turned, with SA home owners to be hit by a country-wide property slowdown.

Not so, said FNB property strategist John Loos: while house price inflation will ease in the short term, by the middle of next year, things are set to turn up again.

Speaking at the annual Rode property conference, held near Stellenbosch on Monday, Loos attributed the future rise in property prices largely to land scarcity and rising building costs.

Land scarcity

"Urban land scarcity is becoming a problem," which in turn means that land price inflation should keep accelerating "quite nicely", he said. The "urban sprawl" is increasingly being constrained by economic infrastructure constraints.

Moreover, construction sector capacity problems will also lead to rising building costs, and will slow down the pace of housing delivery all the way up to 2010, he said.

And with economic growth set to remain strong — with the country likely to achieve five percent GDP growth for the next three years, and then around six percent by early next decade, it "bodes well" for residential houses in the coming years.

Rate peak

Even rising interest rates won't put the SA consumer off from buying houses: Loos believes the country is near its interest rate peak in the current tightening cycle, with one more rate hike forecast. Then, when rates go from "upward to sideways", it will provide a "stimulus" for the market.

But what about affordability? According to FNB's property barometer, only half the number of first-time buyers could get into the market in the second quarter of this year, when compared to the second quarter of 2005 (from 32 percent to 16 percent).

Yet according to Loos, South Africa comes off a very low base. "We're a cheap property country still," he said, and we're only just returning to the affordability levels of the 1970s, following the tumbling house prices of the 1980s and 1990s.

Average prices?

Whereas South Africa's house prices are set to average R1-million next year, according to Absa's House Price Index, house prices in the UK, for example, now average some £200 000 — or nearly R3-million.

The lower affordability levels, which will hit the lower segments of the market, will simply force middle-class buyers to buy smaller average sized units.

"A hell of a lot of the middle-class is going to live in very small houses, in very small stands," he said. "That's how the middle-class will cope with affordability."

Even the teething problems that have accompanied the introduction of the new National Credit Act — which was launched in June — will ease, he said. All of which means that, as far as property prices are concerned: "The Fat Lady ain’t sung. It’s not the end of the show," he said.