The areas formerly classified as “Black Areas” under the Apartheid Era classifications have outperformed the former "White suburbs” in terms of house price growth for much of the period since 2006, playing catch up off a very low price base.
According to Loos, the next major step in the transformation of former Black Township regions is for these regions to lose their “dormitory town” status, through the creation of more alternative business and industrial nodes in closer proximity, which can serve as far more significant places of employment for a far greater portion of their residents.
The Q2 2013 FNB Former Black Township House Price Index for Major Metro regions rose by 8.4 percent year-on-year (y/y) (5.7 percent in Q1 2013) - mildly higher than the 6.3 percent recorded for the entire market in the six major metros (eThekwini, Cape Town, Nelson Mandela Bay, Ekurhuleni, Joburg and Tshwane).
According to John Loos, FNB household and property sector strategist, township markets have shown to be a bit more cyclical than the overall metro residential market, and this probably has much to do with a greater dependence on credit-driven home purchases amongst lower income groups.
Loos explains that during the 2008/9 recession and interest rate peak, the Township House Price Index saw a more significant house price deflation trough, reaching -15.1 percent y/y decline by Q2 2009 (compared to the more mild overall Metro low point of -4.5 percent decline).
In 2009/2010 when interest rates were falling fast and the economy was recovering from the recession, the Township House Price growth rate rebounded more impressively than the overall market off a low base, he says.
“We should perhaps expect the Township House Price growth rate to mildly outperform the rest in the near term, with the residential market going through a relatively good patch, with interest rates low and access to credit for entry level buyers good.”
Loos notes that townships represent the most affordable part of the residential market, with an estimated average transaction price of R281 953 as at the second quarter of 2013.
He says township house price growth really started to gather noticeable momentum in 2004, and peaked at a massive 51.9 percent in Q3 2007, 2.5 years after the growth peak in the Major Metro House Price Index.
The Q2 2013 FNB Former Black Township House Price Index for Major Metro regions rose by 8.4 percent year-on-year (y/y) (5.7 percent in Q1 2013) - mildly higher than the 6.3 percent recorded for the entire market in the six major metros (eThekwini, Cape Town, Nelson Mandela Bay, Ekurhuleni, Joburg and Tshwane).
According to Loos, this lagged boom in township prices is believed to have been driven by a growing search for affordability in these markets following the earlier deterioration in affordability in the suburban markets, but much has also been made of the positive impact of major infrastructure upgrades in these regions, as well as dramatic improvements in retail facilities
“The upgrades to these areas must surely have made many township areas far more attractive places to live than was previously the case, and this should have a positive impact on house prices,” he says.
Another point to remember is that Township house price growth has perhaps underperformed the suburban markets significantly.
Whereas the Major Metro House Price Index rose cumulatively by 393.6 percent from early-1999 to Q2 2013, the Township Index rose by a lesser 283 percent in total.
Loos points out that while this does not necessarily mean that the township market has normalised, it does suggest that the townships have some way to go before being able to compete more significantly with the Former White Suburbs for the residential buying power of middle-to-higher income households.
The infrastructure and retail upgrades have indeed been impressive, and they will continue, he points out.
According to Loos, the next major step in the transformation of former Black Township regions is for these regions to lose their “dormitory town” status, through the creation of more alternative business and industrial nodes in closer proximity, which can serve as far more significant places of employment for a far greater portion of their residents.
This remains a key challenge, as the Apartheid city was designed in such a way that townships were generally further away from existing major business nodes than the white suburbs were, and commuter transport costs from these regions to places of work often remain high to this day.
Therefore, the long-term improvement and upgrades will continue, he explains.
“For the time being, many black households with the financial means will continue for the foreseeable future to migrate to the more mixed-use suburban areas.”
Township regions are showing a lot of promise, and house price growth has perhaps not been as extreme as it would appear, he adds. – Denise Mhlanga
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