House prices are forecast to drop by about 2.5% this year due to a sustained decline in demand as consumers continue to tighten their belts.

According to Jacques du Toit, property and vehicle markets analyst at Absa, the average nominal price of affordable housing increased by 10% to R283,500 last year, compared to 18.9% growth in 2007.

In real terms, prices declined by 1.4% last year, after increasing by 11.1% the previous year.

'The household sector was under severe financial pressure last year on the back of rising inflation and interest rates, while growth in real household disposable income tapered off to its lowest level in 10 years,' said Du Toit.

He said real growth in the South African economy slowed down to an annualised rate of 0.2% in the third quarter last year, driven by sharp contractions in the mining, manufacturing and trade sectors.

The Times (Johannesburg)