Unpacking House Price Segments

Private Property South Africa
Elna Moolman and Gina Schoeman

Even though house prices across the board are slowing down, there are

noticeable differences in the various price segments.

Prior to the current property boom, luxury houses' prices generally outpaced

those of less expensive houses, while the least expensive houses generally grew

the slowest (see Figure 1 and Table 1). This is important from an affordability

point of view, especially for the less affluent whose cost of housing has

increased less than proportionately most of the time.

Source: Standard Bank Group, Deeds Office

Faster growth continues to be recorded in the middle price ranges than among the

most expensive houses (see Table 1). It is apparent to the table below that the

highest growth experienced in the years 2002 to 2005 has consistently moved from

the highest price segment (the 95th percentile) to that of the medium price

segment (the 30th percentile). This is attributable to two factors. Firstly, the

growing middle class supports the middle price segment of the housing market.

Secondly, increasing property prices in the premium segment have been

stimulating the demand for more affordable property, with townhouses and flats

gaining popularity relative to houses. This trend is supported by lifestyle

changes and security concerns, which favour smaller "lower maintenance"

properties in secure complexes. According to Statistics South Africa, the number

of houses completed in September last year was almost 3.1% lower than in the

corresponding period the previous year, while the number of townhouses and flats

completed grew by 170% over the same period. While this reflects a growing

supply of townhouses and flats, the continuous price growth in this segment

implies that the demand for this type of accommodation still exceeds supply.

Source: Standard Bank Group, Deeds Office

The relative performance of different house price segments concurs with the

dynamics in different income groups. The favourable macroeconomic environment

and national redistributive policies are underpinning an upward income migration

of the population, with a rising proportion entering the middle-income groups

from the low-income group (see Figure 2). The proportion of the population that

falls in the highest income group remained more or less constant, and amid a

growing total population, this implies that the number of people in the

middle-income groups have increased.

The relatively low inflation in the cheapest houses is therefore at least partly

attributable to the decline in the proportion of the population in the lowest

living standard measure (LSM) groups , which reduced the demand in this price

class. In contrast, the rising proportion of the population (and number of

people) in the middle-income groups boosted demand for middle-priced properties.

The stagnant proportion of high-income earners explains why rises in the most

expensive houses have been less buoyant than in that of middle-priced houses.

Source: SAARF

Gina Schoeman

Home Loans Product Development

Elna Moolman

Group Economics

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