The Luxury Area Value Band has seen the most noticeable price growth slowdown since 2014, while the Lower End has done a little better of late

Posted On Thursday, 19 October 2017 09:54 Published by
Rate this item
(0 votes)

We compile 5 FNB Area Value Band House Price. 

John_LoosFNB

These indices group areas according to their average home transaction values, using deeds data, and include all cities and towns in South Africa.

The 5 indices are the Luxury Area House Price Index (Average Price = R2.271 million), the Upper Income Area House Price Index (Average Price = R1.231 million), the Middle Income Area House Price Index (Average Price = R873,238), the Lower Middle Income Area House Price Index (Average Price = R569,505), and the Low Income Area House Price Index (Average Price = R345,208)

The 3rd quarter 2017 results show some further slowing in the year-on-year house price growth rates of the 3 highest priced area value bands, but some acceleration in the growth of the 2 lowest priced ones.

The Low Income Area House Price Index was the strongest performer in terms of year-on-year house price growth, recording 14%% year-on-year for the 3rd quarter. This is an acceleration on the prior quarter’s revised 13.3%.

We must caution, however, about major potential distortions in this index. This index includes the subsidized housing component, and new homes in this category, which are not sold to their new owners, are registered at a value with the deeds office which does not reflect any market value. Over the years, there have also been periodic sell-offs of rental stock by councils which have not necessarily taken place at market value. Such distortions mean that in a repeat sales index for Low Income Areas, many homes prices come of a very low base not reflective of market values, and show major price inflation when resold at market value at a later stage. We are thus very careful as to how we interpret the results in this Low Income Area Value Band.

Moving 1 value band up, however, we also see some acceleration in the Lower Middle Income Area Value Band’s year-on-year house price growth, from a 2nd quarter 6.7% to 7.5% in the 3rd quarter. This value band now boasts the 2nd highest average house price growth.

In the 3 area value bands above this, however, year-on-year house price growth slowed in the 3rd quarter of 2017, the Middle Income Area Value Band from 5% in the 2nd quarter to 4.9%, the Upper Income Area Value Band from 5.2% to 4.9%, and the Luxury Area Value Band from 6.1% to 5.3%.

Therefore, while not yet having the slowest year-on-year house price growth, the Luxury Area Valua Band’s rate has slowed the most noticeably in the 3rd quarter of 2017.

On a quarter-on-quarter basis, a better indicator of recent price growth momentum than the year-on-year calculation, there has been a strong convergence of the 3 highest priced area value bands. The Luxury and Upper Income Area Value Bands both showed quarter-on-quarter growth of 1.1% in the 3rd quarter, with Middle Income Areas slightly higher at 1.2%.

Noticeably higher growth was seen in the Lower Middle Income Area Value Band, to the tune of 2.2%, and Low Income Areas (with all the above-mentioned warnings) at 3.8%.

This, in short, all points to superior performance at the lower-priced end of the market where average process are well-below R1m.

The most significant year-on-year house price growth slowing in recent years has been in the Luxury Area Value Band, from an 11.1% high back in the final quarter of 2014 to the most recent 5.3%, followed by the Upper Income Value Band whose growth has slowed from 7.5% at the end of 2014 to 4.9%.

FNB ESTATE AGENT SURVEY ALSO POINTS TO MORE NOTICEABLE SLOWING AT UPPER END SINCE 2014

The more significant upper end slowing has also been apparent in the FNB Estate Agent Survey in recent years.

Upper End homes tend to “naturally” stay on the market for a longer time on average prior to sales than is the case at the lower priced end.

However, from 2015 onward we began to notice a widening in the gap in average time of homes on the market between the Luxury (High Net Worth) and Upper Income Area segments on the one hand, and the Middle and Lower Income Area segments on the other hand.

We must just mention that our agent survey’s income areas are self-defined by agents, so average home values per segment differ markedly from our own area value band segmentations.

In 2014, the “Lower Income” Area segment (average value = R1.26 million) showed an average time of homes on the market of 11.54 weeks. This average time has shortened to an 8.81 week average for the 1st 3 quarters of 2017. Middle Income Areas (average price = R1.60 million) saw average time on market go slightly higher from 10.18 weeks average in 2014 to 11.43 weeks in the 1st 3 quarters of 2017.

The increase in average time on the market in the Upper Income Area segment (average price = R3.44 million) was more significant, from 13.36 weeks in 2014 to 16.38 weeks in the 1st 3 quarters of 2017.

But the most significant increase in average time on the market was to be found in the “High Net Worth” Areas (average value = R7.07 million), rising from 15.86 weeks in 2014 to 23.29 weeks in the 1st 3 quarters of 2017.

In short, since 2014, the higher up the income area ladder we go the more significant the rise in average time of homes on the market appears to have been. Although the FNB Estate Agent Survey Income Areas are very different to our own area value band house price index segmentations, this picture broadly ties in with the FNB Area Value Band  House Price Index picture, where the Luxury Area Value Band has shown the most significant slowing off a higher price growth base.

IN CONCLUSION

The house price growth differential between the 3 highest priced FNB Area Value Band House Price Indices has near completely converged, with all 3 of these segments having shown recent growth slowing.

However, the Lower Middle Income and Low Income Area Value Bands have shown some recent renewed acceleration in price growth.

This does not come as too much of a surprise, given the financially constrained household sector in a weak economy, and multi-year weakness in consumer confidence. The result is, on average, a more financially cautions household searching for greater home affordability, which should mean some shift in demand towards the more affordable areas of the market.

Last modified on Thursday, 19 October 2017 10:04

Most Popular

Impact of fuel price increase on commercial property

Jun 02, 2022
John Loos
It is well-known that the cumulative fuel price increase has added significantly to…

Fluxmans signs long lease with Growthpoint Properties for Illovo Corner offices

Jun 02, 2022
Illovo Corner
South African law firm Fluxmans has signed a long lease with Growthpoint Properties (JSE:…

Rebosis Property Fund bids farewell to Dr Anna Mokgokong, the founding independent non-executive director and chairperson

Jun 02, 2022
Dr.-Anna-Mokgokong
Rebosis Property Fund, a JSE listed real estate investment trust (REIT) with a…

Rebosis reports improved operational performance for six months to end February 2022; focus remains on portfolio optimisation

Jun 01, 2022
Otis Tshabalala Rebosis Property Fund
Rebosis Property Fund, a JSE listed real estate investment trust (REIT) with a…

Please publish modules in offcanvas position.