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8 May 2007

A new house price index holds bad news for buyers.

The property index of Lightstone Risk Management shows that inflation on house prices is higher than are shown by existing indexes.

One of the established indexes showed a monthly increase of approximately 15%, but Lightstone's new index shows that inflation in 2006 was 24%.

From 1999 to 2006, house prices increased with 288%.

This was yesterday revealed by Lightstone during the introduction of their new house price index.

The new index is different from other existing indexes for the South African residential market because it measures resale of existing properties.

It is according to them a wide accepted method to measure the house market and is amongst others used by Standard & Poor in the USA.

The resale method means that specific price classes of house price inflation over a period could be measured, other than an average over the market.

The price of property sold for the first time, are not brought into account.

Lighthouse's index is segmented and sheds light on tendencies in areas where information was not available.

One such an area is the difference between houses along the coast and other houses.

Lightstone defines costal houses as houses that are built 500m from the ocean.

Indexes show that these houses have a lower price increase where in 2004 and in 2005 it was 70%, it was only 4% in December 2006.

"The market for houses along the coast is very volatile," said Mr. John Loos, senior economist of First National Bank.

He said that the influence of inflation and other pressure factors could clearly be seen in this department.

"Houses along the coast are usually second properties and that is why owners can easily step back from them," he said.

In a statement Lightstone says that everything shows that house price inflation in 2007 will be lower.

The 2007 forecast is good news for buyers who had to keep up with giant price increases during the last six years.

According to Lightstone's indexes Kwazulu-Natal had the highest house prices over the whole spectrum with an increase of 296%.

Gauteng was second with a 283% increase. The Western Cape had a 275% increase in prices.

The year on year inflation for Gauteng was more stable with a peak of 29.6%. The Western Cape had a year on year inflation peak of 43% and Kwazulu-Natal a 41.1%.

Loos said in a statement that it might show that Gauteng house buyers are more sensitive for interest rate increases.

Lightstone's new index will be made available monthly and quarterly.