A new report by banking group, FNB, suggests that the high end of the housing market has slowed markedly over the past while.
According to FNB, the new data seems to be broadly in line with what the survey respondents in the FNB Estate Agent Survey have been telling the group.
In that survey, what agents term the “High Net Worth” Area Segment had shown the most noticeable softening in reported activity levels for some time, “so it would not be surprising to have witnessed the most noticeable softening in average house price growth on the high end of the market too,” said John Loos, Household and Property Sector Strategist at FNB.
The FNB Area Value Band House Price Indices provides a picture of the relative performances across areas, grouped by average price levels of those areas, in the 6 major metros of South Africa – Tshwane, Joburg, Ekurhuleni, Ethekwini, Nelson Mandela Bay and Cape Town.
Using Deeds data transactions by individuals, FNB prices properties in the major metros using the following metrics:
- Upper Income Areas – Average house price of R2.813 million.
- Middle Income Areas – Average Price of R1.480 million.
- Lower Middle Income Areas – Average Price of R911,598.
- Low Income Areas – Average Price of R482,918.
“On a year-on-year basis, we see that the Upper Income Area Segment’s average house price growth has slowed from a revised 11.9% back in the 4th quarter of 2014 to 3.2% by the 1st quarter of 2016,” loos said.
Through 2013 to mid-2015, this segment had the highest price growth of all four segments, he said. “But, more recently, from the highest base, this segment has shown the most noticeable slowing in growth through 2015 to date, and is now the slowest of the four Income Area Value Bands.”
By comparison, the Middle Income Area Segment inflated by 4.6% year-on-year, having also followed the Upper Income Segment’s price growth direction slower.
There does, however, appear to have been some “relative strength” build-up late in 2014 in the Lower-Middle and Low Income Areas. On a year-on-year basis, the Lower-Middle Income Segment’s price inflation rate accelerated mildly from a 4.9% low as at the 3rd quarter of 2015 to 5.4% by the 1st quarter of 2016.
The Low Income Area Segment saw its year-on-year price inflation accelerate more noticeably, from 4.3% in the 3rd quarter of 2015 to 6% in the 1st quarter of 2016.
“Therefore, recent area value band house price data has pointed to relative weakness at the higher income/price end of the residential market,” Loos said.
According to FNB, these relative performances of segments are believed to be evidence of mounting financial constraints within the household sector, along with weak consumer confidence levels.
“Real household disposable income growth has been slowed in recent years by a multi-year economic growth stagnation, while interest rates have pushed up slowly. In addition, effective income tax rates on households have been gradually raised in recent years, while municipal rates and tariffs have inflated far in excess of average consumer inflation, dramatically raising the running costs of a home,” said Loos.
“Then, of course, there is the sliding scale for transfer duty, rising to 11% when property values go above R2.25 million and 13% above R10 million,” he added.