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With residential property prices soaring to giddy heights this decade before starting to cool off more recently, many people are looking elsewhere to invest.

But there are still good gains to be made in property, with prices set to almost double over the next five years. Properties in the middle and lower-income ranges are expected to increase in value more than those at the upper end of the market.

That’s according to FNB Commercial Banking property strategist John Loos, who said at the launch of the FNB Private Clients business in Cape Town this week that if you think South African property is expensive “you ain’t seen nothin’ yet”.

The country’s growth rate, expected to be between 4 and 5% annually until the end of the decade is providing more fuel to property prices than foreign buyers, he said.

“The structural switch from high to low interest rates is not quite over yet and a further mild reduction in interest rates is expected.

“Expect the number of households coming into the formal housing market to continue to rise steadily and don’t be too surprised if house price inflation turns upward once more by late-2007 after moving lower since 2004,” said Loos.

In 1998 the average house price, according to Absa’s statistics, was about R227 000. In 2004, this same house was about R633 000, noted Loos.

If Loos’ assessment is right and house prices rise on average by more than 80% over the next five years, the average house will carry a price tag of around R1m and more by the next decade.

Commercial property investors, meanwhile, are set to enjoy even better returns.

“We may have yet to see the commercial property sector boom,” said Loos.

“Industrial and warehouse property rentals are rising steadily on the back of decreasing vacant space, while the office sector should also begin to see better performance as its vacancies also diminish,” he said.

Loos said the way property has been performing and is expected to continue producing returns is typical of “what happens when a country goes into a prolonged period of accelerated growth”.

“You run out of spare capacity in property, on the roads and in electricity generation.”

Contrary to popular belief, said Loos, this lack of capacity does not bring economic growth to a grinding halt.

The prices of an increasingly scarce commodity such as property space are driven skywards while supply catches up. “This is a normal boom,” he said. Hold on tight – property is set to run again by Jackie Cameron

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