House price growth in the former black townships is exceeding that in the former white suburbs.
FNB reported yesterday that house price growth in the former black townships of the six major metros accelerated to 7.6 percent year on year in the fourth quarter of last year from 7.1 percent in the third quarter.
By comparison, houses prices grew by 6.2 percent for the entire market in the six major metros, comprising eThekwini, Cape Town, Nelson Mandela Bay, Ekurhuleni, Johannesburg and Tshwane.
John Loos, a household and property sector strategist at FNB, said the difference between the house price growth rates of former townships and suburban areas had been marginal in recent times.
He said the difference in growth rates was still marginal in the most recent quarter but the 7.6 percent growth rate for the former black townships reflected some real price growth because it was above the consumer price inflation rate.
Loos said residential property in the former black townships was “a solid market where demand is very balanced with supply”.
He noted that, similar to the suburban market, new development activity in the township markets and their surrounding areas was somewhat constrained by building costs that had not been declining.
“The real price growth in the market is a reflection of a constrained supply side relative to demand growth,” he said.
But Loos said building costs might be subsiding because the year-on-year inflation rate in the producer price index for building materials slowed to an annual 6.64 percent in January from a peak of 8.4 percent in October last year.
However, he said not all the blame for the constrained supply of new housing could be placed on building costs.
The reality was that employment growth was now “down to a snail’s pace” and it was tough to deliver housing to a very significant number of people who did not earn a reliable income.
Loos said residential demand relative to supply in the lower-income areas, such as the former black townships, remained solid among the employed.
He believed township house price growth would continue to moderately exceed that of the suburbs as the year progressed.
The former township markets were expected to benefit from a greater search for affordability by home buyers because of an expected moderate rise in interest rates, he said.
However, Loos said these markets remained sensitive to credit and interest rates and FNB’s expectation that the prime rate would increase further towards the end of this year was likely to slow residential demand growth. House price growth in most residential segments was therefore likely to remain in single digits.