Mining town house prices are declining in real terms

(by John Loos*)

The FNB Mining Towns House Price Index points to an underperformance in the major mining regions, as well as to house price deflation when adjusted for consumer price inflation and measured in real terms.

Using deeds office data transactions by individuals in regions deemed to be residential, in towns heavily dependent on mining, we estimate an average mining towns house price index.

The index has clearly underperformed that of the major metro regions over time, as one would have perhaps expected in markets heavily driven by a long term declining industry.

Whereas our major metro house price index had recorded 7.4 percent year-on-year house price inflation in the second quarter of 2015, the mining towns house price index recorded a slower 3.6 percent.

Converting the index to real terms, adjusting for consumer price inflation over time (using PCE deflator), we see negative growth to the tune of -0.4 percent in the first quarter. While we wait for complete second quarter PCE inflation data, the second quarter was almost certain to be negative in real terms yet again, given that inflation has been rising from its first quarter low.

The weakness in the mining town index is hardly surprising, given the current and long term weakness in mining sector production growth. Current levels of the South African mining production index are back at levels similar to the late-1990s, before that production growth surge of sorts early to mid- last decade.

With little longer term improvement in output levels since the 1990s, it is of little surprise that the mining towns house price index, and especially the gold mining towns house price index, has underperformed the major metros since the late 1990s.

To illustrate these relative long term performances, we compile the various house price indices using the first quarter of 1999 as the starting point where all are equal to 100. Since the first quarter of 1999, the major metro house price index has risen by 513.55 percent, the mining towns index by 427.19 percent, and the battling gold mining towns index by an even lesser 363.17 percent.

The residential markets in these towns don’t yet appear extremely weak, however, still inflating slightly in nominal terms. Importantly, there has been some mining production growth to provide small support in recent times. After a sizeable mining output dip in 2014, which had much to do with major strike disruptions especially in the platinum sector, production growth returned to positive rates earlier this year.

However, the situation looking forward appears bleak. Commodity prices globally have dropped sharply, with the IMF metals commodity price index having almost halved since early 2011.

Coupled to this the mining sector’s labour relations situation is tense, and news of potential production cuts and retrenchments has proliferated in recent times.

On top of this, like everyone else in South Africa, many home owners in these towns have to contend with slowly rising interest rates.

Looking forward, therefore, we would expect the mining regions’ residential markets to continue to be one of the underperforming segments of the national residential market, with real house price decline continuing, and with the risk of even moving to periodic nominal house price decline.

*John Loos is the household and property sector strategist at FNB Home Loans.

  Comment on this Article

  Please login to post comments

Post to my facebook wall
Characters remaining

    Latest Property News
    • 21 Nov 2017
      The buying process is over, and the moving truck has delivered your household goods to your new property. Now it’s time to unpack and turn your new house into a home.
    • 21 Nov 2017
      When an offer to purchase a property is signed by both buyer and seller, this constitutes a binding agreement or “Deed of Sale” between the two parties. However, in most cases the “standard contract” might not be enough to cover all the specifics pertaining to the sale. The agreement may require some additions or alterations to clauses, which needs an expert hand in the drafting of such
    • 21 Nov 2017
      As more and more South Africans look to invest in property abroad, Spain is offering them one of the best deals in global real estate.
    • 20 Nov 2017
      Since 2012, sectional title complexes have been leading the South African property market, not only in terms of price growth, but sales volumes as well. Remaining relatively strong, even in the face of 2017’s political and economic turmoil, experts say this market segment could offer valuable insight into South Africans’ property purchase priorities.
    • 20 Nov 2017
      Regardless of whether you are purchasing your first start-up home, downsizing or moving in with roommates, finding ways to maximise small spaces can be a big advantage, says Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa.
    • 20 Nov 2017
      Property valued at approximately R1 billion is on High Street Auctions’ sales floor during the month of November, including the much-anticipated sale of the Tshwane Mayoral Residence and the land occupied by one of South Africa’s oldest operating gold mines.
    • 17 Nov 2017
      FWJK has announced the launch of its latest residential brand, the Lil’ Apple, which will be launched simultaneously in two developments in Cape Town and Umhlanga totaling 600 apartments. The Lil’ Apple is set to be a brand of FWJK’s New York style apartments which will be rolled out nationally.
    • 17 Nov 2017
      It’s been a tumultuous year on many fronts, with socio-political uncertainty setting the tone for much of South Africa’s economic activity yet despite this and seemingly counter-intuitively, the residential property market has held up well.
    Subscribe to the MyProperty Newsletter

    Last Name  
    Email Address  
    Email Frequency
    Share this Page

    For Sale Property
    Rental Property
    More Options
    Connect with us