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Oct 02 2016 20:00 Carin Smith – FIN24.com

Stellenbosch – Inflation adjusted house prices in South Africa are still very expensive, according to property analyst Erwin Rode.

“The South African residential property market did not see the correction the US had after the financial crisis. I think, should things really go awry in SA, house prices will in real terms drop to a more sustainable level – more or less to the inflation-adjusted level of 1985 or thereabouts,” Rode said at the annual property conference hosted by Rode & Associates on the Spier Wine Estate outside Stellenbosch.

“Because house prices are still so high and the supply side still relatively strong, our models forecast house prices in real terms will come down over next few years.” He gave as an example sustained inflation of 6% and nominal prices growing at 3%.

He explained that the market follows a big property cycle – on average 15 to 20 years.

“Of course you can have cycles within cycles, but there is empirical evidence of the long cycle. So, at the moment the big question for property developers and building contractors is where and when the cycle is going to bottom,” said Rode.

“The implications of a cycle of 15 to 20 years are that in your working life you twice have the opportunity to buy property cheaply and twice the opportunity to buy expensively. As investors in property we should start thinking longer term, although I am not saying not to think about the shorter term too of course.”

When he regards the state of the SA economy, he thinks it will take another few years before the property cycle bottoms out.

Rode explained that the prospects for the SA economy include lower growth in the wake of low global growth and infrastructure constraints. Taxes and tariffs will have to increase to make up for the infrastructure backlog.