Residential property prices in South Africa have fallen to their lowest in 23 years as the country’s first recession for 17 years takes its toll on the real estate market.

Unemployment and slowing consumer spending is contributing to the depressed property market, according to the latest price index published by the Absa Group, the country’s biggest mortgage lenders.

The Absa report shows that prices fell 4.4% last month compared with a year ago and it warns that the trend is set to continue even thought the Reserve Bank has cut its benchmark interest rate five times since December, dropping it to 7.5%.

Nominal house prices fell by an average of 2.9% year on year in the first half, compared with a growth of 6.5% in the same period last year.

‘Nominal house price deflation is set to continue for the rest of 2009, starting to slow down towards the end of the year,’ the report said. Analysts expect a further 3.5% fall in prices this year.

Bank reports confirm the severe downward trend. Standard Bank Group, which also uses the median price, said house prices fell 4.9% in June compared with a year earlier.

But some improvement may be seen at the beginning of next year. ‘The lagged effect of lower interest rates and a gradual recovery in the economy from the second half of the year are factors which will contribute to an expected improvement in residential property market conditions from early 2010,’ the Absa report continued.