It appears that affordability issues are increasingly forcing South Africans to forego large, luxury homes in lieu of cheaper, smaller abodes.

Latest quarterly data from Absa show that the category for small houses sized between 80sqm and 140sqm delivered price growth of a hefty 29,2% in second quarter 2010 year-on-year (y/y). That is significantly lower than the 8,5% and 6,2% price growth recorded by Absa’s medium-sized (141-220sqm) and large (221-400sqm) housing categories over the same time.

Moreover, Absa’s luxury housing index that tracks price movements in upper end suburbs priced between R3,1m and R11,5m, was down 1,8% in second quarter 2010 y/y to an average R4,4m – the fourth consecutive quarter that luxury house prices were falling.

Absa senior property analyst, Jacques du Toit, says the strong price growth in the category for small houses has primarily been driven by affordability issues, which has prompted a demand-shift downwards to more affordable properties.

Du Toit says there is no doubt that the recession and high debt levels have forced SA households to trade down. That has supported price growth in lower priced suburbs to a far greater extent than that of higher priced areas.

Du Toit believes demand for smaller homes have also been fuelled by the sharp rise in property operating costs such as electricity, water and municipal rates and taxes. He says homebuyers are increasingly questioning the financial implications of high monthly running costs associated with big-ticket properties that typically come with large swimming pools and rolling green lawns.

Research by property portal Lightstone supports Absa’s figures. Lightstone’s latest housing index, which is based on the repeat sales methodology, shows that the lower end of the housing market recorded price growth of 14% in July y/y compared to 7% to 9% for all the other value bands (mid, high and luxury).

Lightstone director Andrew Watt agrees with Du Toit that increased housing demand and higher price growth in lower priced suburbs have been driven by a growing trend to trade down to more affordable properties. Watt says this has prompted a noticeable increase in housing stock in lower priced areas relative to that in middle and upper end suburbs over the past three years.

At the same time, sales volumes of homes priced above R1,5m have slowed dramatically while sales in lower priced properties increased noticeably. Watt says a substantial 38% of all sales recorded in the Deeds office over the past 12 months were priced below R400k, up from 27% in 2004. – Joan Muller

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