The current economic environment of insignificant growth, mildly rising interest rates and effective personal tax rates, and slowing Real Household Disposable Income growth, FNB believes continues to drive the demand shift towards the smaller-sized segment of the Housing Market.
On top of these above mentioned direct impacts on Household Sector finances, Municipal Rates and Tariffs continue to rise at rates well above consumer price and average wage inflation, sustaining a strong rise in this area of home operating costs. And, of course, there is the “sliding scale” for transfer duties, putting more expensing homes, which are on average larger, into higher transfer duty brackets as their prices inflate.
In FNB’s House Price Indices, they compile a set of 3 indices according to the size of homes.
Our 3 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 3 categories continue to differ significantly. 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 2nd quarter of 2016, and remained on an accelerating growth path. Next was the Medium-sized home category (average price = R1.106 million) with 6.6% year-on-year price inflation, which reflects a slight de-celeration from 7.5% in the 1st Quarter. The large-sized home category (average price = R1.961 million), saw its inflation rate accelerate mildly from 1st quarter to 2nd quarter, but comes off a very low base as this size segment continues to under perform the other 2. From a previous quarter’s 1.4% year-on-year, the Large Sized Segment’s house price inflation accelerated to 4.6% in the 2nd quarter of 2016.
The Small-sized home category has “out-inflated” the other 2 categories for most of the time from 2010 onward. And if one evaluates the performance of the 3 size categories’ price indices since the 1st quarter of 2001, a more than 15 year period, we now see that the Small-Sized segment has outperformed the other 2 on a cumulative inflation basis. The Smaller-Sized Home House Price Index has inflated by 375.3% since the 1st quarter of 2001. 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 a significantly lesser 286.1% since early-2001.
In short, 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. 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.
This is expected to sustain the long term densification trend around the country’s major urban areas, with the move towards a property stock composition including a far greater portion of small-sized homes on smaller average stand sizes in years to come.
Read more here: FNB Property Barometer_House_Prices_by_Size_25_July_2016