Township house prices surge
Bay suburbs outperformed as growth spikes in other property niche, says FNB
FORMER township areas outperformed the suburbs in terms of house price growth in the second quarter of 2014.
FNB Home Loans household and property sector strategist John Loos said the areas formerly classified as “Township Areas” under the apartheid era classifications, marginally outperformed the “Suburbs” in this time period, however, like the suburban markets they also started to show hints at slowing house price growth. The FNB former Black Township House Price Index for the six metro regions rose by 8.8% year-on-year in the second quarter of this year. It is higher than the overall Major Metro Regions House Price Index for Ethekwini, Cape Town, Nelson Mandela Bay, Ekurhuleni, Joburg and Tshwane, which had a growth rate of 6.3% for the same period. Loos said the township market areas have been more supply constrained than the higher priced suburban markets, in the face of recent strong levels of entry-level home buying in a very low interest rate environment. However, like the Major Metro Index, the Township Index’s second quarter growth rate is slightly slower than the first quarter price growth of 9.2%.
“This is perhaps the first hint of a gradual price growth slowdown to come in the townships, although its too early to draw conclusions. The township markets have a lot going for them. Their supply is by many reports constrained, while first-time buying in recent times has been strong, and we believe that these more affordable areas are strongly driven by new entrants to the market,” Loos said.
Well-known estate agent Andile Ben-Mazwi said “if the price is right, the property goes” when asked about the popularity of former township
We believe that these more affordable areas are strongly driven by new entrants to the market
properties in the Bay. Loos said FNB expected a gradual slowing in price growth in the former township markets based on current expectation of further mild interest rate hikes, and the reality that these more affordable markets are highly credit-dependent. To date, since the beginning of 2014 the Reserve Bank has hiked interest rates by 0.75 of a percentage point. Further expected hikes would take the prime lending rate higher to 10.25% by the end of 2015, from the current 9.25%.
Loos said because of the tougher economic and interest rate times, the migration of emerging middle-class members living in the former township areas towards the less-affordable “suburban” residential markets could slow down. “In addition, supply of new residential stock in these former township markets has been constrained in recent years, with building activity not having gained major traction since the post-boom slump around 2008. Therefore, no severe price growth slowdown is expected,” Loos said.