Why Black Township markets thrive?

SA former Black Townships in the major metro areas continue to outperform the high priced house segments but experience slow house price growth.

According to the FNB Former Black Township House Price Index Q3 2011, the performance of the township housing segments should not be a surprise given more rapid Black Population Group income growth off a lower base than the other population groups.

The housing markets in affordable areas of the major metros including Tshwane, Johannesburg, Ekurhuleni, Ethekwini, Cape Town and Nelson Mandela Bay outperformed the rest of the value bands significantly in terms of house price growth, with a portion of the financially pressured household sector searching for affordability.

The most affordable sub-segment of the affordable part of the major metro market is the so-called Former Black Townships.

John Loos, FNB Home Loans property strategist says while these markets have outperformed the higher priced segments, they also appear to be experiencing slowing price growth as a result of interest rates flattening out in 2010 and slow economic growth.

Of the houses transacted in major metro townships, the average estimated price was R265 113 showing a year-on-year (y/y) growth of +10.3 percent in Q3 2011.

Loos says the township markets are also affected by the same economic cycles that other property segments go through. The third quarter house price growth rate represents a slowdown from the previous quarter’s revised 12.7 percent y/y growth rate.

“This remains significantly higher than the estimated +3.8 percent growth rate for house prices in the six major metro regions.”

Why the township regions are performing well?

- these markets did not get oversupplied during the building boom of a few years.

- the transformation in the labour market continues and this implies that off a low base, the Black population group’s disposable income growth has been the most rapid over a good number of years.

- more black home buyers do not necessarily mean superior township market performance because many of these buyers migrate to former white suburbs often following their jobs to a home near major business nodes.

- new affordable housing developments in the former Black Townships do often get introduced to the market at higher prices than the existing housing stock. A significant portion of overall transactions in these newer developments can raise the average price calculated in the Township Index.

Loos says townships still need to complete their transition from dormitory towns to more mixed use regions with economies of their own.

“The transition to mixed use is expected to greatly improve townships attractiveness as places of residence.”

He adds that they believe that the long term prospects are for certain of these township regions to outperform the traditionally more illustrious suburban regions in terms of house price growth off a far lower base for some years. – Denise Mhlanga

Readers' Comments Have a comment about this article? Email us now.

I found the article interesting and hope there will be more research and articles on this segment in the future.However i am not so sure of the accuracy of the results of the analysis.As an example i purchased a one bedroom sectional title unit in Soweto,Protea Glen in 1997 for R55 000.I have been made to believe that it's worth R160 000 but i have struggled to sell it for the past 2 years.I tried rental as well and i cannot get anyone to rent it for R2500.Same size flats that went for the same price in Roodepoort in 1997 are now worth at least R300 000 and the rental on them is substantially more.Another comparison is with Flats in Yeoville that went for the same price at the same time.I am not sure what they are worth now but it's certainly not less than R160 000 and they attract rentals of about R250 000. - Fundile