Despite general slowing in the property sector in South Africa, certain pockets continue to impress, while overall figures show that investing in property remains a sound investment option.
The current economic environment of insignificant growth, mildly rising interest rates and effective personal tax rates, and slowing real household disposable income growth, continues to drive the demand shift towards the smaller-sized segment of the housing market, said FNB.
The bank compiles a set of three indices according to the size of homes in South Africa.
The three size categories are the small-sized segment (homes 20-80 square metres in size), medium-sized homes (80-230 square metres in size) and the large-sized homes segment (230-800 square metres).
The house price inflation rates for the the categories continue to differ significantly, said property sector strategist at FNB, John Loos. The small-sized home category’s (average price = R619,244) price inflation was running in double-digit territory to the tune of 12.5% during the second quarter of 2016, and remained on an accelerating growth path.
The medium-sized home category (average price = R1.106 million) showed a 6.6% year-on-year price inflation, which reflects a slight deceleration from 7.5% in the first quarter.
The large-sized home category (average price = R1.961 million), saw its inflation rate accelerate mildly from the first quarter to the second quarter of 2016, “but comes off a very low base as this size segment continues to underperform the other two,” loos said.
From a previous quarter’s 1.4% year-on-year increase, the large sized segment’s house price inflation accelerated to 4.6% in the 2nd quarter of 2016, FNB said.
The small-sized home category has “out-inflated” the other two categories for mostly since 2010. Evaluating the performance of the three price indices since the first quarter of 2001, FNB said that the small-sized segment has outperformed the other two on a cumulative inflation basis – up 375.3%.
The medium-sized Index is not too far behind with 349.8% cumulative inflation over the same period, but the large-sized segment has underperformed by a significant margin, especially since around 2011, cumulatively inflating by only 286.1% since early-2001.
Average house price in South Africa by size category
|Price by size||2012||2013||2014||2015||Q2 2016|
||R1.65 million||R1.73 million||R1.81 million||R1.88 million||R1.96 million|
|Medium homes||R892,857||R920,280||R986,367||R1.046 million||R1.11 million|
“The focus on size continues to be a key factor in the South African housing market, with ‘smaller remaining better’, driving considerably stronger house price inflation in the small-sized segment,” said Loos.
FNB said it is expected to remain like this in the coming years, with household finances remaining constrained in what is believed to be the ‘stagnating’ phase of South Africa’s economic super-cycle.