Property market remains positive despite weak economy

The residential housing sector has been in surprisingly positive territory despite the current gloomy economic environment.
“Our interpretation of this somewhat surprising trend is that housing demand continues to outstrip supply and like many other parts of the world, the housing shortage in South Africa generally speaking, is on a significant scale in virtually all segments of the market – and while taking into account affordability concerns and constraints, that demand continues to fuel price appreciation and new stock supply,” says Dr Andrew Golding, chief executive of the Pam Golding Property Group.

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“Since the middle of 2012 we started to see a trend of nominal house price growth and then above inflation house price growth. Within these there were and are, as to be expected, significant pockets of under- and over-performance, with an example of the latter being house price growth on the Atlantic Seaboard in Cape Town of more than 20% for the past 12 months.”

Dr Golding says three notable out-performers stand out – the lower end of the residential property market, the sectional title market and the major metropolitan areas.

First-time buyers

Contributing to the high demand in the lower end of the market is South Africa’s largely young population, with growing numbers of aspiring first-time buyers. This is one of the factors impacting the surge in house price inflation in the townships, which – according to FNBs latest property barometer – rose in the second quarter of 2015 by 17% from year earlier levels.

The sectional title market continues to outperform with the gap in price inflation particularly visible between the two extremes of large freehold property, i.e. four plus bedrooms, and the smallest category of sectional title with under two bedrooms. A comparison reveals that in 2014 on average the smallest category of sectional title property increased by 8.8% while large freehold property prices grew by 5.6% on average. For the first half of 2015 the gap between these two widened further to 10.4% for small sectional title property compared with 5.4% for large freehold.

“This trend may be due to lifestyle choice and affordability issues but is perhaps also indicative of the young profile of our population. However, this needs to be viewed against the overall freehold versus sectional title market, which in 2014 saw the former outperform with an average price increase of 6.3% while sectional title averaged 5.6%,” says Dr Golding.

Major metro areas

“In a prevailing trend in recent years the major metro areas continue to outperform with Cape Town currently the strongest (approximately 9.6% in May 2015, according to the latest statistics from Lightstone), but beginning to lose some momentum. Johannesburg (6.8% in May) and Tshwane (8% in May) both continue to gather impetus even as the national house price index is on a very gradual slowdown (5.3% in August),” Dr Golding explains.

“A net influx of people to Cape Town and Johannesburg has resulted in an increased demand for housing, which has been reflected in these two markets gaining market share in terms of their portion of total value of the South African residential market.

“Currently, while the market appears to be becoming a bit more challenging generally and while house price growth appears to be softening, our prognosis for the balance of this year and into the first half of next year is a continuation of the current market conditions,” he concludes. – Bizcommunity

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