30 Jan 2012
House price growth recorded better than average figures in KwaZulu-Natal and Eastern Cape when compared to other provinces in 2011.
KwaZulu-Natal saw average house price growth of 4.7 percent in 2011 (1.5 percent in 2010) and the Eastern Cape showed estimated price growth of 6.4 percent in 2011 (1.1percent in 2010).
According to the FNB Property Barometer 2011 Major Provinces’ House Price Growth Performance report, 2011 saw average house price growth slowing due to slowing growth in the two major markets such as Gauteng and the Western Cape along with the five minor provinces as a group.
KwaZulu-Natal and Eastern Cape took longer to gather steam following the recession of 2008/9 with average house price growth exceeding the national average in 2011.
KwaZulu-Natal saw average house price growth of 4.7 percent in 2011 (1.5 percent in 2010) and the Eastern Cape showed estimated price growth of 6.4 percent in 2011 (1.1 percent in 2010).
John Loos, FNB Home Loans property strategist says it is possible that these two provinces’ significant-sized holiday markets and their dependence on manufacturing caused a bit more pain in the recession times compared to the other provinces.
Also because their economies relied more heavily on the highly-cyclical manufacturing sector which took a knock in the 2008/9 recession than Gauteng and the Western Cape, he says.
This may be the explanation for their more lagged price growth recovery but it’s expected they will record slow price growth in 2012.
Gauteng has been the most stable province in recent years not showing as much price deflation during 2009 as the national house price decline.
It, however, did not show the same extent of mini-recovery in price growth in 2010/11 that the national market as a whole has shown.
Loos explains that in 2011, the average Gauteng house price increase was measured at 2.5 percent (compared to 3.1 percent growth on a national basis), slightly lower than the 2.9 percent recorded in 2010 (compared to 6 percent on a national basis).
“We believe that Gauteng’s seemingly less cyclical market (in terms of price growth fluctuations) is due to its economy being arguably one of the most developed as well as one of the best diversified.”
The Gauteng market is not being as exposed to the highly cyclical manufacturing and related sectors as KwaZulu-Natal and the Eastern Cape for instance, he says.
With economic growth expected to be slow this year, these two privinces are expected to record slow house price growth in 2012.
Gauteng has a very small holiday market relative to the size of its primary residential market and primary residential demand is far less cyclical than holiday residential demand due to more essential nature.
Loos says Gauteng is South Africa’s main head office region and during tough economic times corporates tend to centralise more functions to head office and cut back on operations in smaller economic regions.
This may have partly cushioned the employment blow of the recession in Gauteng and the province is expected to underperform other more cyclical regions in boom times, but outperform them in a slump.
The banks point out that there appears to be little more fluctuation in the major coastal provinces’ housing markets.
The Western Cape recorded more of a mini price recovery than Gauteng in 2010 with 8.4 percent growth in that year slowing to 3.1 percent in 2011, slightly higher than Gauteng and right on the national average.
The FNB Minor Provinces House Price Index showed average estimated growth of 4 percent year-on-year in 2011 down from 5.6 percent in 2010.
According to the report, these more rural and predominantly inland regions also show some resemblance to the more stable Gauteng market, with the index seemingly pointing to less volatility in recent years than the coastal country regions.
They are less holiday-driven than many areas of the coast and heavily exposed to the non-cyclical agriculture sector. – Denise Mhlanga