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House price growth in various segments has continued to slow down after adjusting for consumer price inflation but house prices may increase marginally during the coming year according to figures contained in Absa’s Quarterly Housing Review.

Senior property strategist for the bank, Jacques du Toit says that this can be attributed to various factors including high levels of household debt in relation to income, no further interest rate cuts, the state of consumer credit records and the impact that this has on banks’ lending criteria. He says that the in the affordable housing market (house sizes of between 40m2 and 79m2) and priced at R480k or less, the real drop in prices was 3,9% although in nominal terms prices were just 0,3% lower year-on-year (y/y).

In the small houses category (80m2 to 140m2) the fourth quarter of last year showed nominal growth of 9,3% and real growth of 5,6% y/y.
For medium-sized houses from 141m2 to 220m2 the nominal price growth was 3,3% but the real growth was 3,4% lower than the previous year. For large houses (221m2 to 400m2) the nominal growth was 2,4% y/y but prices dropped by 1,1% in real terms.
Du Toit says the average price for small houses is now R782,800 and for medium-sized houses the average price is R967,100. Large houses have an average price of R1,491,400.

“The luxury housing market, with houses priced from R3,5-million to R12,8-million the nominal price growth averaged about 4,9% y/y but after adjustment for consumer price inflation the average price of a house in this segment was just up by 1,1% in real terms in the first quarter of 2011 after rising by 2,2% y/y in the final quarter of 2010,” says Du Toit.

On a regional basis Du Toit points out that the performance of the residential property market was impacted by a number of area-specific factors such as services, infrastructure including transport, water, electricity and sewage systems, the availability of land for development and the level of regional economic growth.

“Other factors such as investor focus on buy-to-let properties or leisure properties and the location of amenities may have an important role to play in the supply and demand for properties on a regional basis where property prices vary significantly depending on the region,” he says.

Du Toit points out that the high cost of building new houses is also having an impact on regional properties particularly as the costs are influenced by materials, equipment and transport costs, labour and the cost of land suitable for residential development.

“The building cost of a new middle-segment house increased by a nominal 8,7% year-on-year in the first quarter of 2011 after rising by 9,2% y/y in the final quarter of 2010. The average price of a new house is now R1 508 600 or 14,3% higher year-on-year and the real price increase, after consumer inflation, is 10,2% higher,” Du Toit says.

This compares with the average price of an existing house in the middle-segment of R1,009,800 in the first quarter of 2011 which was 1,6% down in nominal terms and 5,2% lower in real terms.

Referring to land values, Du Toit says that the average cost of a plot of land is now R486,600 nationally, 3,5% higher y/y in real terms. “In the coastal areas, land value for new housing of between 80m2 and 700m2 averaged R406,800 but in real terms, the average price of vacant land was down 10,6% year-on-year in the first quarter of this year and 10,9% lower in the final quarter of last year,” he says.

He says the lower land values, particularly in coastal areas are a reflection of market conditions that have been influenced by the economic cycle of the past three years.

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  Absa Market Research, 05-05-2011 [ View all articles ]  
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