A mixed market in South Africa

Slow growth rates and increasing interest rates are scary to investors and citizens, but emerging markets still prove to be a strong pull.

While South Africa has generally been considered a strong market for investors in the past several months, a slow growth rate in December seems to be of concern to many investors. It held steady at 12.5% in both October and November, but December saw it slip to 11.2%, which brought the average year-end price of a home to R964 000.

House prices were up 14.5% overall for the year, but the slowing of the house price growth rate combined with the exchange rate issues and increased prices for both oil and food are beginning to cause serious inflation concerns throughout the country. With inflation pressure mounting, house price growth can only be expected to continue its slow downward slide, and this has more than just foreign property investors concerned.

Seef Property Chairman Samuel Seef said in a recent interview that South Africans, as a whole, were far more concerned about interest rate increases and property prices than political problems throughout the country. Despite concern, the Central Bank seems intent on another interest rate hike.

"We expect this to remain a slowdown rather than a collapse. The data do nothing to change our view that the Bank will hike rates by another 50 basis points at the January monetary policy meeting due to inflation dynamics," said Absa Capital, one of South Africa’s largest financial organizations.

As a result, expansion is expected to decrease on a nationwide basis. Analysts at MoodysEconomy.com have been carefully examining the situation as well. Recently, they concluded, "The interest-rate environment in 2008 will cool both consumption and investment spending."

Some areas, though, are expected to remain hot throughout the coming year. With thirteen large property development projects in Soweto and the 2010 Fifa World Cup looming on the horizon, slow growth and increased interest rates may only scare cowardly property investors.