South Africans will be forgiven for confusion about what’s happening with the value of their residential properties, as industry players continue to send out conflicting housing data. Absa’s house price index reflects a marked increase in price growth over the past six months. The index breached 10% in January, a level sustained in February and March.
Though 10%-11% appreciation may not get property punters excited, given the 20%-plus seen in the boom years from 2004 to 2007, it’s nevertheless the first time in five years that Absa is recording double-digit growth (see graph).
However, FNB data paints a less rosy picture. According to its housing index, average price growth slowed from 6,6% in October to 2,2% in March. Then there’s Standard Bank, which recently overtook Absa as SA’s biggest mortgage lender. Its data seems at odds with that of both Absa and FNB. Standard’s index has fluctuated between 4% and 6% from mid-2012 but spiked to 9,2% in March.
The disconnect in house price movements recorded by banks and other industry players like ooba and Lightstone undoubtedly owes something to the different methodologies they use.
While some indices are a reflection of all sales registered in the deeds office, others use only repeat sales data or their own mortgage activity. Some track average prices; others are based on median prices – the middle price in a range.
Different methodologies aside, the disparate performance figures could also be a result of the housing recovery becoming increasingly location-driven since the market hit rock bottom in 2009.
Absa Home Loans property analyst Jacques du Toit explains: “Regional markets are clearly reacting differently from the national market, as they are influenced by area-specific factors. These may include infrastructure-related issues such as quality of and access to transport, water, electricity and other municipal services. Then there is the availability of serviced development land, employment rates, household income ratios and the relative size of each housing category in different provinces, cities and suburbs.”
Estate agents agree that it is becoming more difficult to determine where prices really are and where they are heading, given the wide swings in performance from one area to the next. “While some areas are still experiencing big price drops, others are recording double-digit growth on the back of growing stock shortages. In many ways, a dual market is now in operation,” says Seeff chairman Samuel Seeff.
He says that by looking at overall sales achieved by Seeff, average nominal prices are still down 10%-15% from 2007/2008 highs. “Sellers who bought at the height of the boom are still taking a small loss,” he says.
Adrian Goslett, CEO of Re/Max of Southern Africa, has a similar view. “Prices in certain areas were relatively unaffected and have in fact recorded a gradual upward trend since 2010, but other areas have not yet fully recovered.” Pam Golding Properties’ figures appear more bullish. The group’s average sales price is up around 25% over the past six years: from R1,41m in 2007 to R1,77m for the year ending February 2013.
But CE Andrew Golding points out that the group’s figures are not necessarily a reflection of the general market as the company operates mostly in higher price brackets. And a single sale of R35m can distort the average reading for that year if a similar-sized sale didn’t occur in the previous one. Golding estimates that average prices have risen about 10% since 2007.
On a more positive note, Seeff, Goslett and Golding all report increased housing sales in recent months. Some agents are starting to experience stock shortages. Golding says that for the first time in five years, selling prices in sought-after suburbs are being achieved close to asking prices, which he believes indicates that demand is finally starting to catch up with supply.
High-demand areas include gated security and lifestyle estates across all major cities, Cape Town’s swanky Atlantic Seaboard and southern suburbs, Stellenbosch in the Boland region, Johannesburg’s northern suburbs, the East Rand (sectional title properties in particular) and pockets of the KwaZulu Natal north coast.
His group is also seeing rising interest in popular second-home Garden Route hubs like Knysna, Mossel Bay, George and Plettenberg Bay.
Seeff singles out gated estates and the Atlantic Seaboard – CampsBay in particular – and Knysna as “pockets of excellence”. Centurion, in Gauteng, and parts of Limpopo province are also proving popular.
“The uptick in sales and prices in Centurion has been driven by a strong influx of middle- to upper-income black buyers in recent months, often government employees with housing allowances,” he says. “The area is seen as sought-after, offering a number of up-market gated estates, with access to good schools, lifestyle amenities and major highways.”
FNB property strategist John Loos says the bank’s research also points to a growing shortage of housing stock. He talks of a significant increase in first-time home buying since the market bottomed in 2009. “Rising rentals in recent years are prompting more would-be tenants to buy instead.”
Developers have added little new housing stock to the market since 2009, putting further pressure on supply. Says Loos: “Though there was initially enough stock to supply the gradually growing demand, this appears to have been mopped up in recent months.”
Consumers may have placed cars before homes on their shopping lists in recent years but Loos says a large part of the vehicle replacement cycle may now have run its course. “Consumers may now be again looking to invest in fixed property as a result.”
But he warns that the market is not heading for another boom. Home owners and investors should expect only “mildly stronger” growth in activity and prices over the next 12-24 months.
Seeff agrees, saying interest rates may be at historically low levels but housing sales volumes are likely to remain subdued for the next two years as consumers continue to labour under high debt levels and rising living costs. “Until 2015, we are likely to see only sideways movement in sales volumes and prices.”
Goslett and Golding are slightly more upbeat. Goslett believes the market will return to 12%-15%/year average price growth within the next few years. This could be significantly higher in markets where there are stock shortages.
Golding agrees that supply constraints could be a key driver of sustainable price recovery. The fact that the gap between selling and asking prices has started to close in recent months is the first concrete sign of the market returning to the days when property consistently delivered inflation-beating capital returns.
Golding says that if supply and demand normalise, the market can expect real growth in house prices again. “We think it is possible to see a period where house price growth is above 10%/year in the not too distant future. But house price growth of 20%/year seems a long way off.”