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Cape Town - The gradual slowdown in South African house price inflation continues, according to the latest Pam Golding Properties (PGP) Residential House Price Index.
"Although buffeted by a range of economic headwinds, the SA residential property market’s gradual slowdown in national house price growth in fact disguises a range of diverse trends – many of which remain positive," said Dr Andrew Golding, CEO of the PGP Group.
“While the PGP index continues to ease, recording an annual growth rate of 5.92% in April, the slowdown in house price inflation remains gradual – with the annual increase in prices just 0.76% below the cyclical peak reached in September 2014."
While the outlook for the economy and the housing market remains relatively modest, Golding believes there are clearly areas of robust house price inflation within the various market segments.
After moderating during the global financial crisis and subsequent local economic recession, house price inflation in the affordable price band (R250 000 and below) has rebounded, accelerating strongly since early 2014.
Price inflation in this category is fast approaching levels recorded during the 2004 boom, with a robust annual growth in prices of 30.65% in April 2015.
"The growth in affordable house prices undoubtedly reflects the growing housing backlog, with an estimated 2 million households currently living in informal settlements,” said Golding.
READ: Slow puncture of property prices has begun
Trends in various price bands
According to the index, general trends in house price performance within the various price bands remain broadly unchanged. The lower price band (below R1m) continues to register the strongest performance (8.96% in April).
However, the national price performance in this lower price band is losing momentum and appears to be approaching an upper turning point. Once price performance in this sector has started to slow, all price bands will register a declining trend in price inflation.
Within the three major regions, the performance of house prices in the lower price band varies significantly. In the outperforming KZN housing market, this category continues to register robust price growth (18.29%), followed by the Cape (12.35%) and Gauteng (8.96%).
A further factor supporting demand in the lower price bands is the growing presence of first-time buyers in the market.
The percentage of first-time buyers has risen steadily in recent years and accounted for 53% of total sales during the first quarter, according to bond originator ooba. Unsurprisingly, affordability is a key priority for many of these new market entrants.
Sectional title properties on the rise
“Given that the metro areas are the epicentre of economic activity within each province, local cities continue to experience relatively rapid rates of urbanisation. With limited land availability within each metro and with growing congestion discouraging long daily commutes, the housing market is seeing a steady increase in densification," said Golding.
As a result, there has been a steady rise in the number of sectional title properties in South African housing markets.
In the first quarter of 2000, sectional title units accounted for just 10.9% of total residential building plans passed. However, by the first quarter of 2008, sectional title accounted for 40.3% of total plans passed.
The percentage declined during the post-crisis economic downturn but has subsequently risen, reaching 38% in the first two months of 2015.
“This growing demand for sectional title properties is not just about affordability, but also security and the growing trend to smaller, more conveniently located properties. This trend is evident in major cities around the globe,” said Golding.
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