Property Talk

As with investing in any asset class timing of your purchase, although important, can be notoriously difficult to get just right. What is far easier to get just right is to invest in areas, which are demonstrating to be high demand and high growth destinations, relative to others.

The FNB House Price Index for October 2016 showed year-on-year growth of 2,4%, down from 3,5% in September and the 6th consecutive month of price growth slowing. As recently as April this year house price growth was recorded at 6,9%. This represents a significant slowdown and with this comes a new wave of investment opportunities.

Once the nominal house price growth is adjusted for CPI inflation, the real growth figures have turned negative to the level of -2,5% in September and -1.1% in August 2016. The question raised is why we are now suddenly experiencing this acceleration in the slowing of house price growth. FNB suggests that it may be due to leads and lags within the economy. Changes occur and a while later, after a lag of time, results are felt. Slowing GDP growth, retail sales, new car sales and employment loss are all coming together to impact on the demand for property and the finance that drives the property market.

The house price growth slowdown is broad based but it is fascinating to see the difference in growth between the four main provinces and the rest. Western Cape properties are still escalating at an impressive 10,5%, followed by KZN at 4,2%. Gauteng properties are currently growing at 2,1%. The Eastern Cape showed marginal growth of only 0,1% and the remaining 5 smaller provinces together posted 0,8% in year-on-year house price growth. If we look at the house price growth across mining towns only, we see a definitive negative growth rate of -1,8%. This is not too surprising given the state of the global mining industry and specifically gold and platinum mines.

The recent rise in the number of days on average a home remains on the market prior to a sale being concluded is also indicative of a tightening property market.

From the 11 weeks and 1 day estimated in the 1st quarter of 2016, to the 14 weeks recorded in the 3rd quarter of 2016 by the FNB Estate Agent Survey shows a significant shift in overall demand. Home operating cost inflation has remained high for prescribed pricing such as Water and Rates (8,08%) and Electricity (7,44%). We do however note that the CPI inflation for Home Maintenance and Repairs is down to a negative level of -0,1% and reflects the weak growth in the retail sales of hardware, paint and glass products. The spend on household furniture, appliances and equipment retailers is down dramatically to -6,8% year-on-year.

For further information and an interactive analysis of this article follow my blog: andreaswassenaar.blogspot.com.