The South African residential property market continues to be buoyant, although the growth in house prices has eased substantially from last year’s peak, Standard Bank economists Elna Moolman and Gina Schoeman said in the latest residential property gauge.
“This deceleration is most evident in the upper price range, while activity and prices of properties in the middle price ranges are still outpacing the growth in other price bands,” they said.
The economists noted that the macroeconomic environment and consumers’ relatively sound balance sheets remain supportive of a firm housing market.
They said the anticipated consolidation in house prices has started to take place with the slowdown in property prices echoed by anecdotal evidence which suggests an increase in the average number of days that a property is on the market before being sold, and a rising gap between asking and selling prices.
“This is the result of recent above-trend growth that created a high base from where future growth rates will be calculated; the reduction in pent-up demand after several years of brisk buying; and the fading impact of previous interest rate cuts,” they said.
The economists found that even though growth in house prices across the board are slowing down, there are noticeable differences in the various price segments.
Prior to 2003, luxury houses’ prices generally outpaced those of less expensive houses, while the least expensive houses generally grew the slowest. This is important from an affordability point of view, especially for the less affluent, whose cost of housing has increased less than proportionately most of the time.
More recently, faster growth has been recorded in the middle price ranges than among the most expensive houses.
This phenomenon is attributable to two factors. Firstly, increasing property prices have been stimulating the demand for more affordable property, with townhouses and flats gaining popularity relative to houses.
According to Statistics South Africa, the number of houses completed this year was almost 20% lower than in the corresponding period last year, while the number of townhouses and flats completed has grown by 68% in the year to date.
While this reflects a rising supply of townhouses and flats, the continuous price growth in this segment implies that the demand for this type of accommodation still exceeds supply.
Secondly, the relative performance of different house price segments concurs with the dynamics in different income groups.
The favourable macroeconomic environment and national redistributive policies are underpinning an upward income migration of the population, with a rising proportion entering the middle-income groups from the low-income group.
The proportion of the population that falls in the highest income group remains more or less constant, and amid a growing total population, this implies that the number of people in this group increased.
The rising proportion of the population (and number of people) in the middle-income groups boosted demand for middle-priced properties, while the stagnant proportion of high-income earners explains why rises in the most expensive houses were less buoyant than in middle-priced houses.
The relatively low inflation in the cheapest houses is at least partly attributable to the shallowness of a secondary market for houses in this price segment. – I-Net Bridge