Affordable homes sought-after in 2011

In 2011, South African home buyers were reportedly looking for affordable homes, according to FNB Home Loans.

The FNB Segment House Price Review Q4 2011 report reveals that home affordability from a price relative to average employee remuneration saw a major improvement in home affordability for the average income earner from the second quarter of 2008 until the end of 2010.

The bank notes that growth in residential property transactions broadly slowed as 2011 progressed as did growth in residential mortgages registered.

This was due to the combination of average wage growth outstripping growth in house prices.

Writing in the report, John Loos, FNB Home Loans property strategist says affordability in the housing market compared to pre-boom times still remains significantly worse despite improvements post the boom.

Home transaction statistics of late have been pointing to slowing growth, being interest rate sensitive and feeling a slowing in affordability improvements as measured by the loan instalment/average wage ratio during 2011.

Loos says high and rising consumer price inflation through 2011 as experienced by the consumer was a further constraint on affordability for would be home buyers.

Home affordability according to the bank continued to be reflected in the relative performances of different housing segments in the latest FNB house price figures for the fourth quarter of 2011.

The small-sized segment’s home price growth mildly outperformed the more expensive medium- and larger-sized home price growth rates.

With regard to full title versus sectional title, the full title segment’s house price growth of 6 percent year-on-year as at Q4 2011 remains significantly better than the sectional title market’s 0.1 percent growth rate in the same quarter.

The average full title home value of R895 692 is higher than the R686 993 sectional title segment’s average, when one compares apples with apples - breaking down the segments by room number, one sees that homes with comparable room numbers in the full title segment are cheaper on average than those in the sectional title segment, says Loos.

He explains that the full title segment’s major sub-segment is the three bedroom market, whose average price was measured at R926 771, lower than the sectional title three bedroom sub-segment’s R953 067.

“The affordability drive view still holds, with the cheaper full title three bedroom average price growth of 5 percent outperforming the sectional title three bedroom rate of 1.3 percent.”

Loos says it is questionable whether people do their sums correctly with regard to home operating costs and the rates and tariffs bill, when searching for the best value for money.

If that was the case, sectional title may have been viewed more favourably when making buying decisions, he says.

He says other cost factors may be supporting the full title segment more than the sectional title market.

Much of the last decade’s building boom focused on suburban sectional title homes and these were often located where land was more freely available and not always in ideal locations.

Older established full title dominant suburbs often have the established government schools, good infrastructure and are better located relative to major employment nodes.

The sectional title segment may still be suffering from a greater degree of over-building in the boom years having been a major target for the more cyclical first-time buyer and buy-to-let demand.

This may imply a still greater oversupply waiting to be mopped up.

He adds that the bank believes these factors continued to contribute to an ongoing better performance from the full title segment in the fourth quarter of 2011 compared to that of the sectional title segment. – Denise Mhlanga