Johannesburg - House price growth in the former black townships is continuing to outstrip that of the former white suburbs, according to FNB.
The FNB house price index for areas formerly classified as black townships in the six major metro regions rose by 17 percent year on year in the second quarter of this year from a revised 13.7 percent in the previous quarter.
This is significantly higher than the house price index for the overall major metro regions, comprising Ethekwini, Cape Town, Nelson Mandela Bay, Ekuruleni, Johannesburg and Pretoria, at 7.4 percent.
FNB said the former townships remained the most affordable areas of the housing market with an average estimated house price of R339 717.
John Loos, a household and property sector strategist at FNB, said the higher average house price growth in the former black townships appeared to reflect greater residential supply constraints relative to demand compared with the former white suburban areas.
Delayed cycle
However, Loos said it might also point to a typical “late in the cycle” search for affordability as the household sector started to feel more financially constrained.
“This relative affordability search may have a lot to do with a superior rate of house price growth that lags the higher valued ‘suburban’ markets,” he said.
It was possible that as affordability started to deteriorate in the normal suburban markets, some would turn to the townships in search of greater affordability.
But Loos said this lag might also say a lot about lowerincome households moving slower on home-buying decisions than upper-income households because of far more limited financial resources and possibly a slower flow of information regarding market trend changes.
This was not the first time FNB had witnessed a big surge in township house price growth a considerable time after the peak in house price growth in the overall metro residential market.
A decade ago overall house price inflation in the major metros peaked at the end of 2004 at 35.4 percent year on year but township house price inflation only peaked later at 51.4 percent in the second quarter of 2007 when “the cracks were already showing in the economy, interest rates were rising and the overall residential market was slowing”.
Loos said township house price growth since 2004 had narrowed the price gap with the suburbs, with average house price growth in the metros rising by 181.7 percent up until the second quarter of this year, while the township house price index rose by 307 percent.
However, the cumulative house price inflation in the major metros since the first quarter of 1999 until the second quarter of this year has increased by 513.55 percent compared with 401.73 percent in the township market.
Loos said the township market might catch up to the suburban market as structural changes slowly occurred there.
This referred to creating more of an economy in these areas, implying more employment and reducing their “dormitory town” status where many people commuted long distances to other parts of the cities for work.
But Loos said many of the more highly skilled people who might have grown up in the townships would still relocate to the suburbs in significant numbers to be nearer to places of employment, high quality retail and entertainment.
BUSINESS REPORT