The latest FNB segment house price review (for the first quarter of 2012) has shown that a marked slowdown in remuneration package rises has taken place since early 2008 and this has significantly increased the ‘affordability’ gap between average home prices and average wages. According to the FNB review, the gap has widened by 27, 2% since the first quarter in 2008.
Another measure of affordability, the loan installment value of a 100% bond on an average priced house, in relation to the average labour remuneration package, has seen an even bigger widening, i.e. 48,8%, since the first quarter of 2008.
Drawing attention to these figures, Nancy Todd, the Rawson Property Group’s Business Development Manager for the Western Cape, has pointed out, too, that the average buyer’s ability to afford a home has been made more difficult by big increases in most municipal rates, electricity and water tariffs, rising household expenses (especially for food) and the banks’ unwillingness to give significant discounts below prime when it comes to awarding mortgage bonds.
In the circumstances, said Todd, the residential market is now very definitely tilted toward the buyer and, she said, that should mean that there is now an oversupply in stock.
“The reality, however,” said Todd, “is that this has not happened. Reports from our franchises (and indeed many other national agency groups) indicate surprisingly that even, although there is an oversupply in the coastal and country towns where there are many second homes, in the urban areas stock shortages are now often encountered.”
Asked to what she attributes this, Todd said that, apart from the fact that many potential buyers are now going through a wait-and-see period and are no longer house hunting because they cannot afford the homes they really want or get the bonds they consider essential, a new, very welcome realism in the market has led to some sellers at last pricing realistically – and, therefore, selling their homes in under six months - or in some cases taking their home off the market altogether.
Another factor to emerge from the report, said Todd, is that for the first time in recent years full title house price growth (at 10,6% year-on-year) has overtaken that of sectional title (at 2, 2% year-on-year). This, she said, again quoting the FNB review, probably reflects a post-boom oversupply in the sectional title market as well as the relatively improved value of full title homes since the downturn. (Although it is no longer the case, for much of the last three years, three bedroom full homes were actually cheaper than three bedroom sectional title units).
The FNB report, added Todd, does give reasons for considerable optimism about the future of South African housing because it contains the news that in both the full title and sectional title fields, year-on-year on nominal price rises have now been evident – at 10,6% in full title homes and 4,5% in sectional title units.
“In both categories however,” said Todd, “small is now beautiful, i.e. the lower priced units are appreciating in value faster than the higher priced units.”
Todd added that it remains true that two bedroom sectional title units are and will continue to be, the number one requirement in today’s South African housing market – and will continue to offer buy-to-let investors excellent returns.
