House price indices 6 October 2014- ABSA

Capital gains tax exemption on primary property
October 1, 2014
Special Merit Award for the Mountain View Villas Project -Cape Town Community Housing Company (CTCHC)
October 8, 2014

Year-on-year growth in the average nominal value of middle-segment homes in the South African residential property market was marginally lower in September this year compared with the preceding month. This came on the back of a declining trend in month-on-month price growth since January this year (see graph below), which was, as expected, eventually reflected in lower year-on-year price growth.
Real house price growth, i.e. after adjustment for the effect of consumer price inflation, remained relatively subdued in the first eight months of the year compared with the corresponding period last year, impacted by the fact that consumer price inflation averaged 6,2% year-on-year (y/y) in January to August. These price trends are according to the Absa house price indices, which are based on applications for mortgage finance received and approved by the bank in respect of middle-segment small, medium-sized and large homes (see explanatory notes).

The average nominal value of homes in each of the middle-segment categories was as follows in September 2014:

• Small homes (80m²-140m²): R820 000
• Medium-sized homes (141m²-220 m²): R1 166 000
• Large homes (221m²-400m²): R1 879 000

The following macroeconomic and household finance-related factors are impacting the residential property market and eventually house price trends:

• Low real economic growth of 0,6% quarter-on-quarter (q/q) in the second quarter of 2014, after a contraction of 0,6% q/q in the first quarter, with full-year growth of 1,5% expected.
• Low private sector formal employment growth up to the second quarter of the year.
• Upward pressure on consumer price inflation, averaging 6,2% y/y in January to August this year, and expected to remain above the 6% level until early 2015.
• An upward trend in interest rates, forecast to continue in 2015 to curb inflation, affecting the cost and affordability of and demand for credit, including mortgage finance.
• Declining growth in real household disposable income and consumption growth, which remains closely correlated on the back of a low level of household savings.
• A household debt ratio of 73,5% of disposable income, with the cost of servicing debt that has risen to almost 8% of disposable income on the back of higher interest rates.
• The number of credit-active consumers with impaired credit records increased to 9,95 million in the second quarter of 2014 (45% of a total 22,12 million), which affects banks’ risk appetite and lending criteria, and the accessibility of credit.
• Continued relatively low consumer confidence of -1 index points in the third quarter.
• Consumers remained mildly to very exposed in terms of their financial vulnerability in the second quarter of the year.

In view of abovementioned trends in and prospects for the economy and the household sector, as well as house price growth in the first nine months of the year, single-digit nominal price growth is forecast for the remainder of the year and in 2015, with real price growth that will be influenced by trends in consumer price inflation.

Explanatory notes:

The Absa house price indices, available back to 1966, are based on the total purchase price of houses in the 80m²-400m² size category, priced at R4 million or less in 2014 (including improvements), in respect of which mortgage loan applications were received and approved by Absa. Prices are seasonally adjusted and smoothed in an attempt to exclude the distorting effect of seasonal factors and outliers in the data. As a result, the most recent index values and price data may differ from previously
published figures.

The information in this publication is derived from sources which are regarded as accurate and reliable, is of a general nature only, does not constitute advice and may not be applicable to all circumstances. Detailed advice should be obtained in individual cases. No responsibility for any error, omission or loss sustained by any person acting or refraining from acting as a result of this publication is accepted by Absa Bank Limited and/or the authors of the material.

Compiled by
Jacques du Toit
Property Analyst
Absa Home Loans
45 Mooi Street
Johannesburg | 2001
PO Box 7735
Johannesburg | 2000
South Africa
Tel +27 (0)11 350 7246

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