|Against the background of various supporting factors, such as a strongly growing economy, low inflation and interest rates, the South African residential property market, according to Absa’s Residential Property Perspective Fourth Quarter 2005, performed particularly well during the past few years.|
During 2000 to 2004, nominal growth in house prices was 19,9% per annum, implying growth of 13,6% per annum in real terms over this period.
These growth rates apply to housing in the middle segment of the market (houses of between 80m² and 400m², costing up to R2,2 million), in respect of which mortgage loan applications were approved by Absa.
Based on the housing market performance at a national level since 2000, the focus of this article is on developments in the residential property market at provincial and metropolitan level. The potential size of the housing market and developments regarding the affordability of housing in South Africa and the various regions across the country are analysed.
The analysis of these housing market indicators takes into account average house prices at the lower cut-off point of the size range for the small (80m²), medium (140m²) and large (220m²) categories of housing, average annual household income, and the number of households in each region that can afford to buy a house under certain assumptions.
National house price trends
In line with the performance of the residential property market over the past five years, nominal year-on-year house price growth of 32,2% was recorded in 2004. This is the highest national average house price growth since 1981.
Taking into account an average headline consumer price inflation rate (CPI) of only 1,4% in 2004, real growth in house prices came to a staggering 30,3% last year – the highest real growth ever (in terms of the Absa house price records dating back to 1966).
This strong growth in house prices brought the nominal price of an average house to about R574 300 in 2004, compared with R232 200 in 1999 – a total increase of approximately 147%. In real terms (after taking into account the effect of inflation), house prices increased by as much as 90% in total during this period. Last year was also the fifth consecutive year of real house price growth – the first time since the early 1980s that real house prices have risen for such a long period without any interruption.
In the first three quarters of 2005, house prices increased by an average 24,3% year-on-year in nominal terms. In real terms, this represented year-on-year growth of 20,4%. Although this can be regarded as a strong showing, the housing market is gradually cooling off and nominal price growth has declined from 30,9% year-on-year in January this year to 17,6% year-on-year in September. This was the lowest year-on-year growth since December 2002 when it was 17,3%. The September year-on-year house price growth was at 17,6% less than half of what it was in September 2004 when it was 35,5%.
This declining trend in house price growth is evident across the board in all the market segments – affordable (houses of between 40m² and 79m² priced at up to about R200 000), middle-segment (houses of between 80m² and 400m² with a price of R2,2 million or less) and luxury housing (houses of any size priced at between R2,2 million and R8,2 million).
The downward trend in house price growth during the course of this year can most probably be ascribed to affordability.
Recent house price trends at provincial and metropolitan level
In the third quarter of 2005, nominal year-on-year growth in house prices varied from 12,7% in North West to as high as 39,5% in Limpopo.
Year-on-year house price rises recorded in the middle segment of the market in Gauteng (19,3%) in the third quarter of 2005, were lower than in some other provinces, and lower on a national basis (19,6%). However, this is not an indication that the property market is performing poorly in this region. This province has had some of the highest house prices in the country for many years. In view of the high base of house prices in this region, the price growth recorded in the third quarter of this year can still be regarded as very good.
The Western Cape has also some of the highest house prices in the country, but price growth remained relatively strong (25,8% year-on-year) in this province in the third
quarter of the year. This can partly be ascribed to the fact that there is still a strong demand for property in the coastal as well as some rural areas of the province.
In the major metropolitan areas, nominal year-on-year house price growth in the third quarter of 2005 varied from 18,2% in the greater Johannesburg area to 25,9% in the
The growth in house prices in the Port Elizabeth-Uitenhage metro area has outpaced that of some other metropolitan areas in the country for some time. This can be ascribed to factors such as the Coega harbour development just north of Port Elizabeth, the good performance of the motor vehicle and vehicle component manufacturing sectors in the area, as well as an increasing demand for coastal property for leisure and investment purposes.
Apart from the major metropolitan areas in the country, the coastal and rural property markets have also put up a good performance, with the demand for these properties increasing significantly in virtually all the provinces during recent years.
This development can to a large extent be ascribed to lifestyle changes. These types of property are becoming increasingly popular as a result of the improved investment status of property, while people are increasingly feeling the need to get away from busy urban lifestyles over weekends and during holiday seasons.
Against the background of the more limited supply of residential properties in these areas compared with urban areas, prices have increased sharply along the coast and in many small, remote rural towns throughout the country as a result of higher demand for these properties.
In the coastal provinces of the Western Cape, Eastern Cape and KwaZulu-Natal, demand and supply conditions for coastal property have, in some cases, pushed prices in all segments of the market to not far below, or even higher than the level of prices in metropolitan areas.
The leisure property market (both coastal and rural) may be driven to some extent by the more affluent households staying in the major metropolitan areas in the country. Foreign buyers of local property are also largely interested in the coastal areas of South Africa.