The South African economy grew at a much subdued 0,3% year-on-year in the first half of the year, with low growth in most sectors of the economy.
Inflation is forecast to remain above the 6% level up to early next year, averaging 6,3% this year and 5,5% next year.
According to Jacques du Toit, Absa Home Loans, Interest rates have been hiked by a cumulative 75 basis points in the first quarter of 2016 and remained unchanged into the fourth quarter of the year. Despite inflation expected to breach the upper inflation target limit of 6% in coming months, domestic interest rates are forecast to remain unchanged in the rest of the year, with rate movements that will be dependent on trends in relevant economic and financial market data.
Continued consumer financial strain was evident up to the fourth quarter of 2016. Inflationary pressures persisted, interest rates have been rising since early 2014, while economic growth remained low and employment contracted up to mid-year. Consumers are to face further financial pressure over the short to medium term, which will impact credit risk profiles and confidence.
Price growth in respect of affordable housing (homes of 40 m² ─ 79 m² and priced up to R600 000 in 2016) slowed down further to a nominal 2,9% y/y in the third quarter of the year, from 3,9% y/y in the second quarter.
This brought the average price of a home in this segment of the market to around R425 000, with price growth on a downward trend since the fourth quarter of last year. In real terms, prices dropped by 2,9% y/y in the affordable segment in the third quarter.
The following price changes occurred in the three middle segment categories in the third quarter of 2016:
• Small houses (80 m² ─ 140 m²): 6,2% nominal and 0,2% real
• Medium-sized houses (141 m² ─ 220 m²): 5,1% nominal and -0,9% real
• Large houses (221 m² ─ 400 m²): 3% nominal and -2,8% y/y real
New and existing housing
In the third quarter of 2016 the average nominal price of a new house increased sharply by 16,1% y/y, after increasing by 9% y/y in the second quarter.
Accelerating building cost inflation and rising vacant land values in the second and third quarters of
the year may have contributed to the significantly higher price growth in new housing in these two quarters.
In real terms, price inflation of 9,5% y/y and 2,6% y/y was recorded with regard to new housing in the third and second quarters respectively.
The average price of an existing house increased by a nominal 3,5% y/y in the third quarter of the year, with some real price deflation of 2,4% y/y recorded. Nominal year-on-year growth in the average price of existing homes has been on a slowing trend since the fourth quarter of 2014.
The price trends in respect of new and existing housing imply that it was about R629 500 or 31,2% cheaper to have bought an existing house than to have had a new one built in the third quarter of 2016.
The cost of having a new house built showed a noticeable increase of 10,3% y/y in the third quarter of 2016, after rising by 8,3% y/y in the preceding quarter. Factors impacting building costs include building material costs, equipment costs, transport costs, labour costs, developer and contractor profit margins, and the cost of developing land for residential purposes. This also includes aspects such as finance costs, land values, the cost of rezoning, the cost of preparing land for construction, costs related to the installation and construction of physical infrastructure, and property holding costs in general.