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PROPERTY BAROMETER – FORMER “TOWNSHIP”
MARKETS
In the 1st Quarter of 2015, Former Black Township house price growth continued
to outstrip the higher priced “Suburban” regions, but for how long can this
continue?
18 May 2015
FORMER
“TOWNSHIP”
HOUSE
PRICE
GROWTH STILL OUTSTRIPS “SUBURBS”
The areas formerly classified as “Black Township
Areas” under Apartheid Era classifications, saw their
house price inflation rate continue to outstrip that of
the higher value “Suburban” areas in the 1st quarter of
2015.
home buyers had admittedly declined slightly in the 1st
quarter of 2015, to 25% from a high of 28% 3 quarters
prior to this, according to the FNB Estate Agent
Survey. However, this remains a high percentage Agent
Survey, and may still be a key source of support for
these most affordable residential regions, with
affordability being a key priority for many new entrants
to the market.
Their higher average house price growth appears to
reflect greater residential supply constraints relative to
demand, compared with the former “White suburban
Areas” or areas with other former race classifications.
First time buying activity
30
28
25
25
20
%
The FNB House Price Index for areas formerly
classified as “Black Townships” in the 6 Major Metro
regions rose by 11.6%. This is up from a revised 9.3%
in the previous quarter, and was significantly higher
than the overall Major Metro Regions House Price
Index (Ethekwini, Cape Town, Nelson Mandela Bay,
Ekurhuleni, Joburg and Tshwane) growth rate of 7.3%.
15
10
5
2005 2006 2007 2008 2009 2010
2011 2012 2013 2014 2015
First time buyers expressed as a percentage of total buyers
Major Metro Former Black Township House
Price Growth
Secondly, residential affordability no longer appears
to be meaningfully improving, with interest rates
having started to rise last year, and house prices
running close to average income growth.
60%
50%
Year-on-year %
40%
30%
20%
11.6%
10%
Smoothed
7.3%
0%
Q1-2000 Q1-2002 Q1-2004 Q1-2006 Q1-2008 Q1-2010 Q1-2012 Q1-2014
-10%
-20%
Major Metro Former Black Townships - Year-on-year percentage change
Major Metro Average House Price Index - year-on-year percentage change
The Former Townships, however, remain the most
affordable areas of the market on average, with an
average estimated house price of R323,472.
The reasons for this “outperformance” in terms of
house price growth can be twofold.
Firstly, our FNB Estate Agent Surveys continue to
point to a high percentage of 1st time buying early in
2015. 1st time buyers expressed as a percentage of total
Can the former Townships continue to indefinitely
outpace other residential areas in terms of house price
growth? Probably not. We tend to find that these
markets are more cyclical than the higher priced
“Suburban” regions. Home buyers in these regions are
on average more sensitive to economic and interest
rate cycles than higher income households, and as such
these markets tend to “outperform in the better times
and underperform the average in the bad times. In the
tougher times, 1st time buyers tend to diminish in
number, waiting it out for better days, and this could
have more of a dampening impact on Township
markets than on higher priced areas should interest
rates resume their rise later this year.
If we look back at the 2008/9 recession as an example
of this greater cyclicality, we see that the Township
House Price deflation rate bottomed at around -16%
year-on-year in the 2nd quarter of 2009, whereas the
overall Major Metro house price index deflation rate
was far less severe, bottoming at -4.3% in the same
quarter.
Looking forward, therefore, the expectation of a
resumption of interest rate hiking late in 2015, along
with an economy battling to achieve even 2% growth,
makes it possible that towards 2016 we will see the
FNB Township House Price Index’s inflation slowing
more into line with overall national trends.
JOHN LOOS:
HOUSEHOLD AND PROPERTY SECTOR STRATEGIST
MARKET ANALYTICS AND SCENARIO FORECASTING UNIT: FNB HOME LOANS
011-649 0125
John.loos@fnb.co.za
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