Based on Absa’s house price data, year-on-year growth in home values was on a declining trend through 2015, with full-year growth down compared with 2014. The lower house price growth was the result of a range of macroeconomic developments and factors that affected consumers financially, and which were eventually evident in property market trends and conditions during the course of the year. These were the findings of Absa Home Loans property analyst Jacques du Toit in his Absa’s Housing Review for the first quarter 2016.
The downward trend in nominal year-on-year house price growth in the middle segment of the South African residential property market continued up to the end of last year. Real year-on-year middle-segment house price growth was also lower due to declining nominal price growth and trends in inflation during the year. Price growth in the affordable segment improved further in 2015 after some higher growth in 2014 compared with the preceding year.
The segment for luxury housing showed a declining trend in nominal and real price growth during last year, with full year growth down on that of 2014.
The nominal price of a property refers to the price at which it was valued or transacted on the open market, i.e. the market price, selling or purchase price and is reflected in a valuation, an offer to purchase, an application for mortgage finance and the transfer documents at registration.
The real price of a property is the nominal price adjusted for the effect of inflation, and is calculated to determine if the value of a property has increased at a rate above or below the average inflation rate. In addition to the nominal price, real property price trends are thus important from a property investment point of view.
The residential property price trends presented in this report are based on the value of properties for which Absa received and approved applications for mortgage finance. As a result, price movements may reflect changed market strategies and lending criteria implemented by the bank, impacting differently on the various housing segments analysed. Real price calculations are based on nominal prices deflated by the headline consumer price index. All price data series are seasonally adjusted and smoothed in an attempt to exclude the distorting effect of seasonal factors and outliers, which may have the effect of recent price data and growth rates differing from previously published figures.
The fourth quarter of 2015 saw the average price of affordable housing (homes of 40 m² ─ 79 m² and priced up to R575 000 in 2015) increasing by 9,1% y/y to around R417 000. Real price inflation of 4% y/y was recorded in the fourth quarter.
The average price of affordable homes increased by a nominal 9,2% in 2015 compared with growth of 6,6% in 2014. In real terms prices were up by 4,4% last year after rising by 0,5% in the preceding year.
The average nominal price growth of housing in the middle segment of the market (homes of 80 m² ─ 400 m² and priced at R4,2 million or less in 2015) slowed down further to 4,8% y/y to a level of about R1 380 000 in the fourth quarter of 2015. Price growth averaged 5,3% y/y in the third quarter, 6,4% y/y in the second quarter and 8,1% y/y in the first quarter of last year. Due to declining nominal price growth and trends in inflation, real price growth slowed down during the course of last year and some marginal price deflation of 0,1% y/y occurred in the middle segment in the fourth quarter of the year.
For the full 2015, middle-segment housing saw nominal price growth of 6,1% (9,3% in 2014), while prices increased by a real 1,5% last year (3,1% in 2014).
The following price changes occurred in the three middle segment categories in 2015:
- Small houses (80 m² ─ 140 m²): 4,7% nominal and -1,4% real.
- Medium-sized houses (141 m² ─ 220 m²): 5,2% nominal and 0,6% real.
- Large houses (221 m² ─ 400 m²): 5,8% nominal and 1,2% y/y real.
In the segment for luxury housing (homes priced at between R4,2 million and R15,5 million in 2015), the average nominal price increased by 4,1% y/y to a level of R6,1 million in the final quarter of 2015. In real terms, the average price in this category of housing was down by 0,7% y/y in the fourth quarter of last year.
Nominal price growth of 7% was registered in the luxury category in 2015 (9,3% in 2014), with real price inflation recorded at 2,3% last year (3% in 2014).
Regional house prices
The performance of the residential property market at geographical level is affected by national economic trends in general. However, the regional property markets may react differently to developments and trends at macro level, mainly due to additional area-specific factors such as location, physical infrastructure, sectoral economic composition and the level and extent of economic growth and development. These factors may have a /profound effect on property demand and supply conditions, market activity, buying patterns, transaction volumes and price levels and growth.
House prices in the middle segment of the market performed as follows at provincial level in 2015:
- Western Cape: A nominal 8,6% higher (3,8% in real terms).
- Gauteng: Up by 6,6% in nominal terms (1,9% in real terms).
- Eastern Cape: Up by a nominal 6,2% (1,5% in real terms).
- KwaZulu-Natal: Up by 4,2% in nominal terms (-0,4% in real terms).
- Limpopo: A nominal 3,7% higher (-0,9% in real terms).
- Northern Cape: 2,9% higher in nominal terms (-1,6% in real terms).
- North-West: Up by a nominal 1,2% (-3,3% in real terms).
- Free State: 1,1% higher in nominal terms (-3,3% in real terms).
- Mpumalanga: Down by a nominal 2,1% (-6,4% in real terms).
The performance of middle-segment house prices in the major metropolitan areas was as follows in 2015:
- East London: Up by 12,8% in nominal terms (7,9% in real terms).
- Cape Town: A nominal 10,6% higher (5,8% in real terms).
- Durban/Pinetown: 7,6% higher in nominal terms (2,9% in real terms).
- Greater Johannesburg: Up by a nominal 6,7% (2,0% in real terms).
- Port Elizabeth/Uitenhage: A nominal 5,7% higher (1,1% in real terms).
- Pretoria: 4,9% higher in nominal terms (0,3% in real terms).
- Bloemfontein: Down by 0,4% in nominal terms (-4,7% in real terms).
The coastal regions saw the following changes in the average price level of homes between 80 m² and 700 m² and priced up to R15,5 million in 2015:
- All coastal regions: Up by 8,3% in nominal terms (3,5% in real terms)
- KwaZulu-Natal: 10,4% higher in nominal terms (5,6% in real terms)
- Eastern Cape: A nominal 8,6% higher (4,1% in real terms)
- Western Cape: 6,8% higher in nominal terms (2,1% in real terms)
Coastal property markets prove to be relatively small and normally have a major investment and leisure focus, with these regions that may experience noticeable swings in market conditions, price levels and price growth against the background of trends in and developments regarding macroeconomic factors, household finances and confidence levels.
New and existing housing
The average nominal price of a new house was down by 1,9% y/y to R1 782 300 in the fourth quarter of 2015, after declining by 2,4% y/y in the third quarter. Real price deflation measured 6,5% y/y with regard to new housing in the fourth quarter of last year (-6,8% y/y in the third quarter). For the full 2015, the average nominal price of a new house was down by 0,2% (+1,6% in 2014), while in real terms the average price dropped by 4,6% last year (-4,2% in 2014).
The average price of an existing house increased by a nominal 6,6% y/y to a level of around R1 370 600 in the fourth quarter of 2015, which resulted in real year-on-year price growth of 1,6%. Nominal price growth of 7% was recorded with regard to an existing house last year (9,4% in 2014), with real price growth that came to 2,3% (3,1% in 2014).
In the fourth quarter of 2015 it was R411 700, or 21,3%, cheaper to have bought an existing house than to have had a new one built.