Property Barometer – FNB Gauteng sub-region House Price Indices

Major Gauteng residential regions still showing general affordability improvements as real prices decline. Clear patterns when comparing sub-regional performances are difficult to identify at present.

FNB’s second quarter 2017 Gauteng Sub-Regional House Price Indices continue to show rates of growth below general economy-wide consumer inflation, pointing to ongoing price decline in real terms (when adjusted for consumer price inflation), and likely improvement in housing affordability when considering house price inflation relative to income inflation.

The broad Gauteng metro picture

Using Deeds Office Data, FNB constructs a set of house price indices for key sub-regions within the province of Gauteng, the aim being to evaluate this regional housing market’s performance in more detail.

FNB have then rolled up this set of sub-regions into overall house price indices for each major metropolitan council region as well as for each district municipal region in those areas outside of Gauteng’s three metros.

All three of Gauteng’s major metros continue to show low single-digit house price growth.

In the second quarter of 2017, the City of Tshwane’s estimated average house price growth rate was 4.48% year-on-year, by a small margin stronger than Ekurhuleni’s 3.71% and City of Joburg’s 3.31%.

Real house price performances

With Gauteng Consumer Price Index (CPI) Inflation at 5.2% year-on-year for the second quarter of 2017, these low nominal house price growth rates translate into house price declines in real terms (when adjusted for CPI), Tshwane to the tune of -1.8% year-on-year, Ekurhuleni    -1.4% and Joburg -1.8%.

The three Gauteng Metros have been undergoing a gradual real house price correction for much of the time since the beginning of 2008.

Since the quarter of 2008, Tshwane’s cumulative real house price decline has been -22.7%, Joburg -23.6% and Ekurhuleni 25.9%.

Affordability improvements continue to be witnessed in a good market balance and strong rates of new entry to Gauteng markets being achieved

Ongoing real house price “correction” in the Gauteng Metros is contributing positively to a healthy balance between demand and supply of housing, and relative ease of entry for first time buyers compared to certain other major regions.

Both the Tshwane and Joburg regions (“Joburg” in the FNB Estate Agent Survey referring to City of Joburg as well as Ekurhuleni) continued to show estimated levels of first time home buying to be above the national average. For the first two quarters of 2017, first time buyers were estimated at 28.58% of total home buying in Greater Joburg and 21.8% in Tshwane, the National Average being slightly lower at 21%.

First time home buyers are on average more financially constrained than the more established repeat home buyers, and thus very sensitive to home affordability levels.

For the first two quarters of 2017, Joburg and Tshwane also had the highest percentages of first time home buyers of the major metros.

The recent years of real house price decline/improving affordability in the Gauteng Metros appears to have been a key positive for these first time buyers.

In the second quarter of 2017, Gauteng’s Estate Agent Survey sample estimated average time of homes on the market prior to sale to be around twelve  weeks, having remained near to that level through most of 2016/17.

This is a good level compared to the average time on the market for the three coastal metros, Ethekwini, Nelson Mandela Bay and Cape Town, whose average has risen noticeably to twenty weeks and three days.

Greater Joburg at 12.86 weeks and Tshwane at 9.57 weeks had the two lowest average times on the market of the major South African metro regions, Cape Town with a significantly longer 16.21 weeks, Mandela Bay on 16.29 weeks and Ethekwini on 20.93 weeks.

We zoom in on the City of Joburg’s main regions … Is the economy beginning to bite low income regions too? Neither highest nor lowest priced ends appear to ‘outperform’. 

An interesting aspect observed in certain of the Gauteng data is that the lowest income regions may no longer be the best performing. Over the past five years, the region within Joburg with the highest cumulative house price growth has been the Diepkloof-Soweto-Meadowlands-Pimville Region, with 35.67% growth from the second quarter of 2012 to the second quarter of 2017. This is historically one of the country’s major Apartheid era “Black Township” regions, and is on average the cheapest of our City of Joburg sub-regions.

But more recently, this region appears to have become an under performer, showing slight average house price deflation to the tune of -1.16% year-on-year in the 2nd quarter of 2017. Also noteworthy is that the highest priced “Sandton and Surrounds”, the highest average value sub-region, is also in the doldrums, inflating by a mere 0.54%.

Tshwane – neither the highest nor the lowest priced regions are the strongest here either

In Tshwane, FNB sees something similar to City of Joburg in that over the past five years it has been the lowest income/priced Winterveldt-Mabopane-Soshanguve-Ga-Rankuwa-Hammanskraal region, a mix of former Apartheid Era “Black Townships” and Bophutatswana Homeland areas, that has shown the highest price inflation in Tshwane region to the tune of 41.07%. Admittedly, in such regions there may be some price inflation distortions with subsidized housing not always registered in deeds offices at market price.

But, as in the case of the Soweto region in Johannesburg, this region had the weakest estimated house price growth in the second quarter of 2017, to the tune of a negative -0.76%. Like Joburg, too, the highest priced Pretoria East and Centurion sub-regions were also not superior performers, recording 4.42% and 4.68% year-on-year price growth respectively in the second quarter of 2017. Pretoria North East with 12.32% and Pretoria West regions had the fastest house price growth in the quarter.

Ekurhuleni sub-region performance 

Patterns are a little more difficult to identify in Ekurhuleni, but once again it is neither the highest or the lowest priced sub-regions that were the top performers recently.

Here too, FNB finds that the lowest priced sub-regions are some of the weakest in terms of house price growth. The major Tokoza-Vosloorus-Katlehong “Former Township” region showed low (and below the metro average) year-on-year price growth of 1% in the second quarter of 2017, while Nigel, the region with the second lowest average price showed deflation of -0.78%.

On the high priced end within Ekurhuleni, FNB had Alberton, the highest priced sub-region, showing 3.82% year-on-year house price growth, Kempton Park, the second most expensive region, showing 4.05%, and Edenvale, the third most expensive region, recording a small 0.37% positive growth rate.

Best performers were certain of those priced somewhere in the middle, namely Brakpan with +12.98% year-on-year growth and Germiston with +7.25%, some of the more affordable regions but not the cheapest in Ekurhuleni.

But the most depressed market appears to be down on the Vaal in the heavily manufacturing-dependent region of Emfuleni District Municipality 

The Emfuleni District, which includes major towns of Van der Bijl Park and Vereeniging, is heavily Manufacturing dependent, and the Manufacturing Sector in South Africa has been “below par” for some years. Van der Bijl Park sees 32.3% of its GDP (Gross Domestic Product) coming from Manufacturing according to IHS Markit estimates, the highest percentage of any major town in Gauteng.

Perhaps not surprisingly, therefore, Emfuleni Municipal Area has seen its five-year cumulative house price growth under perform the three Gauteng Metros, recording only 18.75% growth in total since the second quarter of 2012.

And as at the second quarter of 2017, the region’s year-on-year percentage change was a negative -2.76%, with the Manufacturing-heavy Van der Bijl Park seeing house price deflation of -4.08%, and the Low Income Evaton-Sebokeng “former townships” deflating by -3.67%.

Vereeniging, less Manufacturing-heavy than Van der Bijl (Manufacturing in Vereeniging a lesser 18.8% of its GDP), still saw moderate price growth of +3.56%.

Main conclusion 

Although the trends and patterns emanating from Gauteng sub-regions are not strong ones at present, FNB believes that the message emanating from the three Gauteng Metros Sub-Region House Price Indices is that the most recent sweet spot is neither at the highest or the lowest-priced end, but somewhere in the “relatively affordable” middle where new middle class entrants probably like to buy.

For the low income groups, South Africa’s almost zero growth economy may be starting to bite in terms of a lack of new job creation and income growth, which may mean that the lowest priced regions, many which would be former “Townships”, have weakened more noticeably in terms of average price growth.

At the high priced end in each metro, on the other hand, confidence in the country’s economic future can be a reason for buyer caution amongst higher income groups, while it is also arguably about the high running and transaction costs related to higher value homes that comes with municipal rates and tariffs rising at rates well-above general inflation in recent years, and higher transfer duty brackets at the high end.

Down in the Vaal Regions, the Manufacturing-dependent Emfuleni District appears to be the weakest housing region in Gauteng of late.

Read more here: Property Barometer – Gauteng House Price Indices – July 2017