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[Radio] How do house prices in traditional ‘townships’ compare to broader metro markets? (Interview by Hilton Tarrant with John Loos)

August 10, 2013

John Loos is household and property sector strategist at FNB. He tracks prices and trends in House Price Index & Property Barometer. Along with this he regularly provides insights into segments of the property market.

HILTON TARRANT: This month you published data on the prices of houses in the former or traditional township areas of the major metros. How do the prices in these areas compare to the broader metro markets, which obviously are primarily made up of traditional suburbs?

JOHN LOOS: Hilton, if you look just recently in the second quarter, that’s our most recent data point, they are inflating slightly ahead of the overall urban market, so the major metros, township markets, 8.4% year on year up, and our overall major metro index 6.3%, which also includes the townships more dominated by the former white suburban markets. So not too much in it at the moment.

There have been times – there was a time in about 2006 where township price growth was about 50% and well in excess of what the suburbs were. So it has been playing catch-up, this market, since round about 2006. Overall I think it’s safe to say it has out-inflated the suburban markets off a low base. Now it’s mildly over-inflated, outperforming the suburban markets, but not too much in it at the moment.

HILTON TARRANT: A little more cyclical as well. The peaks higher, the troughs lower when compared to the broader metros.

JOHN LOOS: It is so. I think that’s a function of township markets still being the most affordable markets in the country. So it’s lower-skilled labour, and job opportunities are more cyclical. I think that group possibly got hit harder by the retrenching cycle during the recession and I think they’re also more credit-dependent or home-loan dependent. And so interest-rate cycles and access to credit played an important role.

So back in 2008 or 2009 township prices, according to our estimates, declined by 15.1% whereas the major metros were only at ‑4.5%. So they tend to hit lower troughs in the bad times and come back more strongly in the better times.

HILTON TARRANT: John, what is the price band of these houses that you are tracking in these former township areas? What would be an average transaction price?

JOHN LOOS: The average estimated price is R282 000, roughly. So that gives you an idea. It is still the very low end of the market, very affordable. And I think that was what became attractive round about 2006, after a considerable period of strong house price inflation in prior years in the suburban markets, which made them almost unaffordable to a lot of new emerging middle-class entrants perhaps.

And so there was quite a big search for affordability round township areas and new affordable housing developments and that then boosted these price-inflation rates.

Source: Moneyweb

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