The latest FNB house price index puts year on year house price growth at 5,1% and inflation at 5,7%, indicating that, in real terms, house prices are still declining '“ by 0,6% per annum.
'The higher inflation rate,' says Sean McCauley, a director of Rawson Properties, 'might seem to indicate that South Africans have increased their spending. However, if you look at the main components of their payout basket comprising food, water, rates, electricity and private transport, it is clear that it is the huge increases here that are responsible for the higher inflation. South Africans are on the whole living responsibly'
Year on year food price increases, said McCauley, are now up 8,7% year on year. Water and municipal rates have risen by 9,2%, electricity costs are up a whopping 17,3% and private transport costs by a massive 21% (due almost entirely by higher petrol prices).
'None of those components is really under the control of the home owner or private individual,' said McCauley. 'We can, of course, cut back on power, food and petrol consumption but overspending by consumers is no longer responsible for the higher inflation rate. If these excessive increases are taken out of the inflation equation, house prices are actually showing real price growth'
In the coming years, said McCauley, the more austere economic conditions under which South Africans will now live, will affect home ownership in four main ways. It will, he said,
1. Boost the lower and affordable housing market while at the same time possibly decreasing demand for upper bracket houses.
'The call will be for both smaller, more compact homes and for those with lower running costs, e.g. with low power consumption and smaller gardens'
2. Increase the demand for homes nearer to the business nodes and other places of work and for homes on the efficient, fast public transport networks (like the Gautrain).
3. Popularise 'green' solutions. Solar heating, wind power and gas, and designs are bound to become more thermally efficient and rain water collection and grey water usage will increase.
In addition, the tough times will make rental property more popular and, therefore, could boost the buy-to-let market.
'The figure showing how many South Africans are selling because of financial pressure now stands at 22% and appears still to be rising. However, it seems, conditions will not will not radically change for another 18 months. However, with the Eurozone economy now showing signs of a collapse, which will affect stock exchanges worldwide, there can be few safer investment assets than a South African home. A 5,1% year on year growth may not appear high but it is a far better return than 90% of other international assets are giving at present.
For further information contact Sean McCauley on 011 463 1092 or email sean@rawsonproperties.com.
