Small-sized homes (20m² to 80m²) continue to outperform the medium-sized (80m² to 230m²) and the large-sized (230m² to 800m²) homes, according to FNB.
“The house price inflation rates for the three categories continue to differ significantly,” said John Loos, household and property sector strategist. “The small-sized home category’s (average price of R619,244) price inflation was running in double-digit territory to the tune of 12.5% during Q2 2016, and remained on an accelerating growth path.
“Next was the medium-sized home category (average price of R1,106m) with 6.6% year-on-year price inflation, which reflects a slight deceleration from 7.5% in Q1 2016. The large-sized home category (average price of R1,961m) saw its inflation rate accelerate mildly from Q1 2016 to Q2 2016, but comes off a very low base as this size segment continues to underperform the other two: from a previous quarter’s 1.4% year-on-year growth, the large-sized segment’s house price inflation accelerated to 4.6% in Q2 2016.”
The small-sized home category has “out-inflated” the other two categories for most of the time since 2010, with Loos saying the small-sized segment has outperformed the other two on a cumulative inflation basis too.
“The smaller-sized house price index has inflated by 375.3% since Q1 2001,” he said. “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.
“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.”
What’s driving the trend?
- Slow or insignificant economic growth
- Mildly rising interest rates and personal tax rates,
- Slowing real household disposable income growth
- Municipal rates and tariffs that continue to rise well above consumer price and average wage inflation
- The “sliding scale” for transfer duties, putting more expensive homes (on average larger) into higher transfer duty brackets as their prices inflate.