Major Metro former “Township” house prices still estimated to be rising faster than the so-called former “Suburban” markets

The FNB Major Metro Former Township House Price Index continues to outperform the overall Major Metro House Price Index in terms of average price growth, but the pace of increase is slowing. “Townships” areas remain the most affordable residential areas on average.


Areas formerly classified as “Black Township Areas” under Apartheid Era classifications, saw their house price inflation rate continue to exceed that of the overall Major Metropolitan Regions in the 2nd quarter of 2016.

The higher average house price growth of the Townships in recent times appears to continue to reflect greater residential supply constraints relative to demand, compared with the former “White suburban Areas” or areas with other former race classifications.

The Township markets do appear to be typical “late-comers” to property cycles, and also appear to be more cyclical than the higher priced markets, experiencing higher price inflation peaks and lower troughs.
The FNB House Price Index for areas formerly classified as “Black Townships” in the 6 Major Metro regions rose by a still-strong 9.8% year-on-year in the 2nd Quarter of 2016.

This is mildly lower than the revised 10.7% price growth rate of the prior quarter, and down from a 12.5% high reached in the 2nd quarter of last year. However, despite some recent slowing, the Former Township House Price Index continued to inflate well-above the overall Major Metro Regions House Price Index (Ethekwini, Cape Town, Nelson Mandela Bay, Ekurhuleni, Joburg and Tshwane) growth rate of 4.4%.
Despite recent solid house price growth, however, the Former Townships remain on average the most affordable areas of the market, with an average estimated house price of R359,980.

FNB has previously mentioned that much of this “out performance” by the former Townships in terms of house price growth is merely a typical lag behind the higher end of the residential market, and not because of any ability to defy “economic gravity”. Lower income communities are more sensitive to interest rate moves and economic cycles, than are higher income communities who often have stronger financial “buffers” with which to withstand tougher financial times.

While still having recently outperformed the rest, Townships and other Lower Income Areas will be the ones to watch in the near term.

On the one hand, given the multi-year economic stagnation of recent years, the financial risks may be mounting for lower income communities to a greater extent than those of higher income communities. On the other hand, however, a greater search for affordability can be supportive of more affordable housing markets in tougher financial times.

Therefore, it is a balancing act, and for Townships to continue to outperform the higher priced segments it probably depends on economic weakness and household financial pressure not deteriorating too much further than where it is now.

The short but very sharp 2008/9 recessionary shock was probably a bridge too far for the Townships, and they quickly went from being the strongest performer in 2007 to the weakest by 2009, dipping to a -16.1% year-on-year decline by the 2nd quarter of 2009.

At present, financial pressure still appears far from the severe levels of 2008/8 that may have led to the Townships underperforming the rest back then.

At that stage, the FNB Estate Agent Survey estimated that in “Lower Income” Areas the percentage of sellers selling in order to downscale due to financial pressure has peaked at around 28%, significantly higher than higher income area segments. While these “Lower Income” Areas were largely in areas a little higher up the price ladder than the former townships, the point the survey makes is that when economic and financial pressure becomes severe, the lower down the area income bands one goes the more severe the financial pressure becomes.

In recent times, this financial pressure-related selling has just begun to rise, led by the Lower Income Area segment. But at an estimated level of around 16% for the Lower Income Area segment, this is still a far less severe situation than 2009, and for the time being the Townships, and indeed our broader “Low Income” and “Lower Middle Income” Metro House Price Indices, too, still outperform the “Middle Income”, “Upper Income” and High Net Worth House Price Indices in terms of price inflation.

Read more here: FNB Property Barometer_Residential_Market_Former_Townships_Price_Index_July_2016