House prices rise faster in townships than suburbs

By Roy Cokayne Time of article published Nov 13, 2013

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Johannesburg - Areas formerly classified as black townships under apartheid continue to marginally outperform former white suburbs in terms of house price growth, according to FNB.

The FNB former black township house price index for major metro regions rose in the third quarter by 6.9 percent year on year, compared with revised 5.2 percent growth for the previous quarter, exceeding the 5.8 percent growth recorded for the entire market in the six major metros – eThekwini, Cape Town, Nelson Mandela Bay, Ekurhuleni, Johannesburg and Tshwane.

John Loos, an FNB household and property sector strategist, said yesterday that the former black townships had outperformed the former white suburbs in terms of house price growth for much of the period since 2006. He attributed this to the townships “playing some catch-up off a very low price base”.

But Loos said cumulative township house price growth from the first quarter of 1999 to the third quarter of this year had underperformed the price growth in the suburbs.

The major metro house price index rose cumulatively by 396.6 percent from early 1999 until the third quarter of this year while the township index rose by 284.9 percent in the same period.

Loos attributed this relatively more moderate price growth performance by the township market partly to improved growth in supply of new stock over the years.

He said there had been periods in the property cycle in the past 15 years where house price growth in the former black townships had exceeded that of the higher-income former white suburban markets.

But Loos said the longer-term cumulative performance appeared to reveal a township market that had not narrowed the price gap with the suburbs since the late 1990s.

Demand in affordable areas had grown steadily over time but so had supply, led by various affordable housing drives, he said.

Loos said house price trends in the township market appeared normal despite being a little more cyclical than the suburbs.

He said statements were regularly made that the so-called affordable housing market, which included the bulk of former black township markets, had massive supply shortages and almost “unlimited demand”.

Loos said these statements were perceived to be based on the high number of households that still resided in informal settlements but this did not reflect true demand, which relied on those households that had the means to buy homes at the prevailing price levels and also wished to do so.

He said the former black township residential market no longer appeared to have very strong demand relative to supply as it did in about 2007.

Loos said this market instead appeared to be relatively well balanced, which was reflected in an average house price growth rate that was not very far out of line with consumer inflation and translated into only mild growth in real terms because extreme demand relative to very limited supply would almost certainly drive real prices higher at a far faster rate.

He said the former black township markets appeared a little more sensitive to interest rates and economic cycles.

In times of market strengthening, house price growth in black townships tended to be higher than the overall major metro house price index but in times of economic weakening and interest rate hiking, the price dips in the township market could be a little more severe, he said.

Loos attributed this to lower-income households arguably being more dependent on credit for home buying than higher-income households and they also had less financial buffers to weather periodic economic storms. - Business Report

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