Johannesburg - The Western Cape residential property market appears to be propping up South Africa’s house price growth rate.
The FNB house price index for last month rose by 7.4 percent year on year.
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John Loos, a household and property sector strategist at FNB, said this was slightly faster than the revised 7 percent rate recorded for April and implied an acceleration in nominal house price growth for the past four months using the latest revised data.
Loos said there were three possible drivers of the perhaps surprising mild acceleration in average house price growth at a time when interest rates had been rising, including the Western Cape market.
Positive sentiment
“We believe that a key contributor in holding up the national house price index growth rate is the strong recent performance of the Western Cape region’s housing market.
“A lot of positive sentiment exists in this region, the country’s second largest economic and residential property regions after Gauteng Province, and along with a significant land constraint, this has boosted the province’s house price growth into double digits,” he said.
Loos said the FNB Western Cape house price index recorded 12 percent year-on-year growth during the first quarter, compared with significantly slower growth in the other major regions.
The Eastern Cape recorded 7.6 percent year-on-year house price inflation in the first quarter, KwaZulu-Natal 5.6 percent, Gauteng 3 percent and the other five provinces a mere 1.7 percent.
“It would, therefore, appear to be very much a Western Cape story in recent times,” Loos said.
He added that the good news from a market risk perspective was that there appeared at present to be little indication of any “over exuberant” behaviour nationally.
However, Loos said the strong Western Cape market could invite such behaviour and become an exception to the national rule.
But Loos said data releases last month suggested the residential market remained largely “rational” in its behaviour and there was little reason to be concerned about over exuberant behaviour that risked causing big market “overshoots”.
He said indicators of potential over exuberant market behaviour were the pace of housing turnover and the estimated level and growth in the number of individuals owning multiple properties.
Loos said the pace of housing turnover remained relatively slow, which suggested that speculative activity remained muted.
The percentage of properties, which were purchased within the previous 12 months and were being sold by individuals, was an extreme 13.93 percent of all properties traded by individuals in June 2005 at the height of the property boom, but in April this year was only at 3.71 percent, he said.
Loos said multiple property ownership using deeds office data was estimated at 16.2 percent of total properties identified as owned by natural persons in March this year. It had remained fairly stable in recent years after rising sharply between 2004 and 2008 during the property boom.
General inflation
He said the other two key drivers of the recent acceleration in average house price growth was the lagged impact of a higher general inflation environment and a slightly better economic environment in the second quarter.
Loos said it was possible that higher house price inflation was in part reflective of a higher general inflation environment.
He said the manufacturing purchasing managers index was one of the key up-to-date indicators of short-term economic movements and, after a dismal first quarter, had shot back to above the crucial 50 point level, suggesting some possible mild economic improvement.
“Such improvement may also be reflected in the rise in month-on-month house price growth,” he said.
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