For 2014 as a whole, Former Black Township house price growth performance “outperformed”, reflective perhaps of strong 1st time buying and a greater search for affordability as overall market affordability begins to deteriorate.
The areas formerly classified as “Black Township Areas” under Apartheid Era classifications, outperformed the overall Major Metro Residential Markets in terms of house price growth for 2014 as a whole.
While not booming, their higher average house price growth appears to reflect greater residential supply constraints relative to demand, compared with the former “White suburban Areas” or areas with other former race classifications.
In 2014, the FNB House Price Index for areas formerly classified as “Black Townships” in the 6 Major Metro regions rose by 9.5%. This is up from 6.5% in 2013, and was higher than the overall Major Metro Regions House Price Index (Ethekwini, Cape Town, Nelson Mandela Bay, Ekurhuleni, Joburg and Tshwane) growth rate of 6.8%.
The Former Townships, however, remain the most affordable areas of the market on average, with an average estimated house price of R304,562 average for 2014.
The reasons for this moderate “outperformance” in terms of house price growth can be twofold, both of which relate to affordability.
Firstly, our FNB Estate Agent Surveys have pointed to a high percentage of 1st time buying in 2014, higher than in 2013 after a renewed strengthening in this group’s buying levels. 1st time buyers expressed as a percentage of total home buyers rose noticeably to levels above 25% last year, according to the FNB Estate Agent Survey. Why is this important? Because 1st time buyers are probably, on average, the most financially limited group in the residential market, and therefore one would find many starting off in the more affordable markets. The Former Townships definitely fulfill this affordability desire for many.
Secondly, 2014 also saw residential affordability start to deteriorate as per our own FNB Affordability Ratios.
Of our 2 main affordability measures, the 1st measure, namely the Average House Price/Average Employee Remuneration Index, rose (deteriorated) slightly by +0.6% in the 2nd quarter of 2014 compared to the level for the previous quarter. This translates into a +2.8% rise on the final quarter of 2013.
The 2nd measure, namely the “Installment Payment Value on a new 100% Bond on the Average Priced House/Average Employee Remuneration Ratio” Index, also rose by +0.6% in the 2nd quarter, which translates into a more noticeable +6.6% rise since the end of 2013. Both indices were driven higher by house price growth exceeding growth in average employee remuneration, while the latter index had the additional upward pressure from the first 50 basis point interest rate hike, which took place in January 2014.
Both affordability indices remain relatively low compared with the 2007/8 peak levels, but 2014 saw the start of an affordability deterioration after prior years of improvement. This may well cause buyers to increasingly search for affordability over time, and that in turn would arguably benefit the Former Township areas to a greater degree than others.