These are some of the findings in Absa’s latest House Price Index, which showed that the average nominal value of small, medium and large houses for which Absa approved mortgage finance increased by a weighted 14,8% y/y in June versus 14,7% in May.
“Price growth in the South African housing market appears to be nearing an upper turning point,” says Jacques du Toit, property economist at Absa.
He says the affordability of housing was to a certain extent adversely impacted by trends in the growth of house prices and households’ disposable income in the latter half of 2009 and in early 2010. “I believe this is one of the main contributing factors to buyers’ recent focus on the smaller housing category, with attendant effects on house prices in this category,” Du Toit said.
The prices of small houses (80 to 140sqm) have shown resilient growth in June. Not only did their growth prove to be by far the highest at 33,6% y/y, but it also showed an increase of 3,9% on its May figure of 29,7%, the largest of all the housing categories.
The average nominal value of small houses approximated a level of about R868,600 in June.
The average price of a middle-segment house is now R1 083 700. It jumped by 9,7% y/y in June, after rising by a revised 8,6% y/y in May.
The slowing of house price growth is most evident in the category large houses (221 to 400sqm), decreasing to a nominal 6% in June after a rate of 6,3% was recorded in May.
Du Toit says this slowing in price growth in the large category can be ascribed to base effects, with y/y price deflation slowing rapidly in this segment up to June 2009 before price growth resumed in July.
The average nominal value of a large house in June was R1 469 200.
Du Toit said the expectation is for y/y house price growth to decelerate in the second half of 2010. “This is mainly driven by the base effects of a recovery in property prices in the latter half of 2009.”
Dr Andrew Golding, CE of Pam Golding Properties (PGP), says insofar as house price growth is concerned, there is not a consistent trend across all house categories, regions and type of home e.g. primary versus secondary.
However, he agrees with Absa’s assessments that smaller and cheaper homes are experiencing better price growth at the moment. “It does appear that the small and medium sized home market is experiencing a much stronger recovery in prices (especially in the R300k to R1,5m price range), while the upper end of the market has not responded generally in the same way and in many cases prices achieved have only kept up with inflation i.e. no real growth.
“Coastal and leisure properties (especially the second home market) continue to under-perform the general appreciation in house prices evident in the small to medium sized primary residence market.
“We agree that price growth as an average may well stabilise in the latter half of the year for a number of reasons including the large number of distressed sellers that are still in the market, the stringent credit criteria that banks are generally still applying and various economic data that suggests that the local and global economy will still be under pressure (there is the very real threat of a secondary dip in the recovery). These will all affect consumer affordability.
“Positive unknowns include the effect of the World Cup and the real possibility of another interest rate cut of 0,5% in the near future.”
Meanwhile, the president of the South African Reserve Bank, Gill Marcus, yesterday gave encouraging indications that interest rates might be cut in two weeks’ time.
Sake24 reported that Marcus cited persistent problems in the world economy and the threat of a double-dip recession as reasons for keeping interest rates low for longer.
However, John Loos, property economist at FNB, says a 50 basis point cut won’t be enough to stop the expected slowdown in the second half of the year. “I think in the scenario of the world going into some sort of double-dip recession, it would be conceivable that we get a few more rate cuts. Under such a scenario, though, I would still expect a property market slowdown, because of the negative economic impact.” – Eugene Brink
Readers' Comments Have a comment about this article? Email us now.
Great article, Eugene. Putting pressure to lower rates further… - Abrie Jurgens
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