The increased demand for smaller homes by home buyers due to affordability pressures is driving strong price growth in that segment.
According to First National Bank’s latest house price indices, whether the housing market is segmented by home size or by room number, the same theme emerges; smaller sized segments have stronger average price growth.
The popularity of small homes is largely due to the fact that home buyers are seeking more cost effective alternatives as the rapid municipal and utilities tariff hikes, rises in home operating costs, rising interest rates, and a weak economy start to bite.
Home sizes are classified by FNB as:
- Small sized home: 20-80 square metres
- Medium sized home: 80-230 square metres
- Large home: 230-800 square metres
Transfer duties payable by the buyers is also a factor in their decision to downsize. Due to the “sliding scale” of transfer duties, more expensive homes fall into a higher transfer duty bracket and these extra costs need to be factored into the total home buying costs.
Average home prices according to size:
- Small homes: R 606 562
- Medium homes: R 1.099 million
- Large homes: R 1.855 million
FNB’s latest price growth statistics show that small homes increased by 12.4% and medium sized homes increased by 7.6% in the first quarter of 2016. Large homes on the other hand have been most affected by the economic conditions with that segment showing price deceleration of 1.2% for the same period.
The trend is a continuation of one that has been evident over the past 15 years. “If one evaluates the performance of the 3 size categories’ price indices since the 1st quarter of 2001, a 15-year period, we now see that the Small-Sized segment has outperformed the other 2 on a cumulative inflation basis over the 15 years," says John Loos, FNB Household and property sector strategist.
That’s 15 years of steady growth in the small home segment, which bodes well for the future of small homes in the South African property market.
What’s the bottom line?
Smaller homes require less upkeep, utility bills are lower and transfer duties are more affordable. Sectional title homes are a good option- they are more land efficient and 1-bedroom sectional title homes are showing strong inflation in the current, weakened economy.
Sectional title homes are ideal for first time buyers, or investors looking for a buy to let property. The shared cost of ownership, together with lock up and go lifestyle is increasing demand for this type of property.
South Africa has a common property trend where spacious homes in middle and upper income areas are popular, but this is changing as costs continue to rise. These cost issues are driving homebuyers to invest in smaller homes that are more affordable to operate. In other words, for your next property purchase you may want to think smaller.