CAPE TOWN – The FNB House Price Index was unchanged at 3.5 percent year on year in December, bringing the average annual house price growth to 3.6 percent last year, slightly lower than the 3.8 percent year-on-year growth in 2018.
FNB senior economist Siphamandla Mkhwanazi said they expected annual house-price growth of 3.7 percent this year, which remained below the bank’s inflation forecast of 4.3 percent for the same period.
“House prices will be weighed on mainly by tepid disposable income growth, as well as low sentiment levels. Marginal support will come mainly from lower interest rates, as well as a readjustment in supply of new build stock,” he said in the FNB Residential Property Barometer released on Monday.
Possible higher taxes might impact disposable incomes, he added.
Pressure on house-price growth persisted in “affluent” areas, while low-income areas remained resilient.
In the third quarter of 2019, for instance, higher-priced areas averaged -0.5 percent year on year, while low-income areas averaged 16.7 percent house-price growth year on year.
“Sellers in the upper end have constantly had to reduce asking prices to close the deal, while low-income areas are also supported by robust buy-to-let activity.”
He said economic growth was expected to remain muted this year, weighed down by the weak fiscal position, weak labour markets impacting negatively on income growth and consumers’ spending power, as well as fragile business confidence.
Positively, inflation was expected to be relatively benign, with the possibility of one 25 basis point interest rate cut.
The demand for mortgages had improved mildly across all price segments. At the same time, some sellers withdrew their properties on the market for resale amid unfavourable selling conditions, which had somewhat curtailed the pace of supply.
“Nevertheless, there is still robust supply of new stock, as well as emigration-related sales,” said Mkhwanazi.
On the other hand, inbound demand (from foreigners buying property, as well as from South African expats buying property locally) remained “comparatively subdued”.
Mortgage advances had been progressive in recent months, which helped inject liquidity in the market, but these benefits mainly accrued to the higher-priced segments, with lending in the lower end remaining broadly conservative.
SA Reserve Bank data showed mortgage advances grew at a progressively faster rate last year, reaching 5percent y/y in November, while year-to-date advances grew by 4.8 percent – the highest growth in a decade.
Statistics SA data showed a “massive surge” in the supply of new residential units in 2019, particularly of sectional title units in Gauteng. Year-to-date October volume of new units was up 76 percent compared with the same period in 2018.