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No more pools as house hunters look for basics

Jan 04 2016 20:05
Carin Smith

Cape Town - Average house price growth in SA could possibly be below 5% in 2016, according to John Loos, household and property sector strategist at FNB Home Loans.

He said the first FNB Property Barometer for the new year - released on Monday - indicates that a more conservative household sector would likely constrain the performance of the residential property market.

He expects a likely average house price growth rate of around 6% in 2015, mildly slower than the 7.1% of 2014.

"However, we would expect further slowing in this average rate in 2016 to lower single digits, possibly below 5%, which would be reflective of some slowdown in residential demand," said Loos.

Smaller-sized homes and smaller average stand sizes are expected to be more popular as a portion of households tries to contain home operating cost increases, especially steadily-rising municipal rates and utility tariffs.

This may keep the sectional title market’s house price growth at mildly better levels than that of full title, in his view.

"Luxuries such as swimming pools are likely to become even less cool, so we would expect new home building to be very much focused on basics and 'few frills'," said Loos.

"However, a greater focus on energy alternatives to the grid may be witnessed in middle-to-higher income areas, given further power tariff increases last year."

READ: Inflation eroding real house price recovery - Golding

Loos further anticipates that lower and middle-income areas will outperform the high income or price end of the market in terms of house price growth, as a portion of demand shifts “down” in search of greater affordability in anticipation of mild further interest rate hiking during the year.

As he anticipates home buying to be overwhelmingly about "essentials", he expects the primary residential demand-dominated city markets to begin to outperform the holiday town markets.

Many other less economically-diversified rural towns may also be at greater risk than the major metros in 2016 - especially mining and manufacturing-driven towns.

The drought also poses a threat to many towns where agriculture is the dominant driver, depending on how long it continues.

According to Loos another possible trend in the residential property market could be a renewed rise in yields on residential property, because part of a more conservative household spending approach could be some strengthening in demand for rental properties.

This would drive rental inflation slightly stronger, while house price growth falls slightly slower.
 
Loos also expects the possibility of a renewed slowing in household sector credit growth, as a more conservative borrowing approach also rears its head.

"The new year shows a need for property and consumer-related businesses to improve their creativity and efficiencies in an economy that looks set to continue its mediocre performance," he concluded.

ALSO READ: Climbing interest rate strains property market

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fnb  |  fnb house price index  |  house prices  |  property

 
 
 
 

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