Significant growth in township house prices

Johannesburg - Township house price inflation could significantly outstrip that of other suburban homes in the very near term, according to an index released on Wednesday.

The FNB House Price Index for areas formerly classified as “black townships” in the six major metro regions - Ethekwini, Cape Town, Nelson Mandela Bay, Ekurhuleni, Johannesburg and Tshwane - rose by a very strong 17% year-on-year.

This is up from a revised 13.7% in the previous quarter, and was significantly higher than the overall Major Metro Regions House Price Index growth rate of 7.4%.

"We would expect that by next year house price growth in township areas would also start to slow, curbed by expected further rises in interest rates and the reality of a weak economy and weaker rates of net job creation that appear to be coming our way," said John Loos, household and property sector strategist at FNB Home Loans.

For the foreseeable future houses in the so-called townships are expected to remain on average the most affordable, despite a recent surge in average township home values. Currently houses in townships have an average estimated house price of R339 717.

"Their higher average house price growth appears to reflect greater residential supply constraints relative to demand, compared with the former 'white suburban areas' or areas with other former race classifications," explained Loos.

"However, it may also point to a typical 'late in the cycle' search for affordability, as the household sector starts to feel more financially constrained."

Loos pointed out that home buyers often have to weigh high transport costs and long transport times to places of work against home affordability, so relative home affordability isn’t attractive to everyone.

There also exists the possibility that, as affordability starts to deteriorate in the other suburban markets, there is a turn by some to the townships as they search for greater affordability.

Fin24 Source