Housing in Southern Africa December 2015

News

Township house price growth

A ccording to John Loos, House- holdandProperty Sector Strate- gist, FNBHome Loans, township areas saw house price inflation con- tinue to outperform that of the major metros. However, the average house price inflation showed early signs of tapering off in the third quarter. The higher average house price growth of the townships reflects the greater residential supply constraints relative to demand, compared with the suburban areas. The townships market also appears to be more cycli- cal than other residential sectors. The FNB House Price Index for townships in the six major metros rose by 10,7%year-on-year in the third quarter. However, this is slightly lower than the 12.3% revised price growth rate of the previous quarter, but well- above the overall Major Metro Regions House Price Index (Ethekwini, Cape Town, Nelson Mandela Bay, Ekurhu- leni, Joburg and Tshwane) growth rate of 5,4%. The former townships remain the most affordable area of themarket on average with house prices averaging

Former black township house price growth continued to outstrip the higher priced white suburban areas, but slowed mildly in the third quarter of 2015.

R331 826. Township prices outperform themajor metromarket largely due to affordability, as HouseholdDisposable Income growth comes under pressure. Loos says, “Whatever the reasons, township markets do appear to have the characteristic of lagging the over- all market somewhat, outperforming later in a cyclical upswing phase, or after the broader upswing phase. We saw this a decade ago, too, wherema- jor metro overall house price inflation peaked at the end of 2004 at 35.5% year-on-year. Township house price inflation only peaked a few years later at 51.5% in the 2nd quarter of 2007, by which time the cracks were showing in the economy, interest rateswere rising and the overall residential market was slowing.” Lower income groups are highly credit dependent, and often work in more cyclical sectors in larger num- bers, such as manufacturing.

Over the long term, major metro house price inflation outstrips the township index. “However, overall growth in trans- action volumes suggests a different picture. We have built transaction volume indices using Deeds data property transactions by individuals, which should be residential domi- nated. We started both the overall Metro Markets Volume Index and the Former Township Volume Index at 100 in December 1999. Over a six month period, township volumes were 140.5% higher in the six months to June 2015, compared to December 1999, while the Overall Metro Markets were only 22% up over the period.” Loos suggests that this contrasting situation reflects a far sharper growth in transaction volumes in township regions relative to the suburbs. This results in a steady normalisation of thesemarkets inmanyways, including the reported release of a large amount of former local government owned rental stock into the traded township markets over time. In addition, Loos says, “There has been a major Affordable Housing development drive over this period, much of it around former township areas. Therefore, former township supply levelsmay well have improved a lot faster than suburban areas. Greater supply improvements may explain why over this 15 year period the average house price inflation rate of former townships has underper- formed compared to the Overall Major MetroMarkets over this long period.” ■

December 2015