|Outlook for the SA residential housing market|
According to Jacques du Toit, Property Analyst at Absa Home Loans, the South African property market showed a steady performance in 2014, with nominal price growth of just above 9% and real price growth of about 3% after adjustment for inflation. Du Toit says a normalisation of and more balanced housing demand and supply conditions have largely contributed to the house price growth seen in 2014.
“The current investment horizon for residential property is believed to be around 5 years to allow for proper capital appreciation.”
Du Toit says that this was not a bad performance, taking into account last year’s economic trends and the ongoing financial strain experienced by consumers. According to Absa’s latest Housing Review, the average price of affordable homes increased by a nominal 6,4% in 2014, compared with growth of 3,5% in 2013. In real terms, prices increased by a marginal 0,3% last year, after declining by 2,1% in 2013. Middle-segment housing experienced a nominal price growth of 9,4% in 2014 (10% in 2013), while, in real terms, the average price of homes in this category improved by 3,1% in 2014, after real price growth of 4,0% in 2013. In 2014, a nominal price growth of 9,7% (5% in 2013) was recorded in the luxury housing segment. This translated into a real price growth of 3,5% in 2014 after adjustment for the effect of inflation (-0,7% in 2013). The following price changes occurred in the three middle-segment categories in 2014:
The latest indicators show that nominal middle-segment house price growth came to 8,4% (y/y) in February this year, down from 8,9% y/y in January and a recent high of 9,9% y/y in September last year. On a month-on-month basis, nominal price growth slowed down further, to 0,3% in February. “The gradual declining trend in nominal house price growth since late last year is much in line with continued subdued real economic growth of 1,3% y/y in the final quarter of last year. Full-year growth was 1,5% in 2014 (2,2% in 2013 and forecast at 2,2% in 2016). Somewhat higher interest rates and a continued low level of consumer confidence could also have played a role in the lower house price growth in early 2015,” explains Du Toit.
The outlook for house prices in 2015 is one of continued single-digit growth, against the background of the outlook for major economic and household sector-related factors, although base effects may cause price growth to be somewhat lower compared to 2013 and 2014, when price growth of 10% and 9,3% respectively was recorded. “Based on current expectations regarding nominal house price growth of around 8% and consumer price inflation of 4%, real price inflation is projected for this year, continuing on from the previous two years,” says Du Toit.
The aspects that drive the property market and, ultimately, property prices are believed to be:
Taking all these factors into account, Du Toit believes that investment in property is still advisable, as it contributes to the diversification of an investment portfolio, while capital appreciation and income can be derived from the investment in the long term. “The current investment horizon for residential property is believed to be around 5 years to allow for proper capital appreciation. However, buyers should keep in mind that property values and capital appreciation are determined by factors such as location and physical factors related to the property and the area,” concludes Du Toit.
Photos – Top: Absa; middle and bottom: iStock
Article from Absa Platinum ezine # 65