Real Estate Investor Magazine South Africa May 2014

STRATEGIES BY JOHN LOOS Targeting townships A portion of first time home buyers are choosing to purchase property in the established township market T he areas formerly classified as “Black Township Areas” under Apartheid Era classifications, outperformed the former white suburbs in terms of house price growth late in 2013, albeit only marginally. of which are in or around these township areas, and a high rate of first time buying activity in the past few years has arguably served these markets well. From the point of view of those already owning homes, capital growth in real terms is normally welcome news. In the 4th quarter of 2013, the FNB Former Black Township House Price Index for the six Major Metro regions rose by 7.6% year-on-year. This is slightly higher than the 7.1% revised growth for the previous quarter, and mildly higher than the 6.2% recorded for the entire market in the six major metros (Ethekwini, Cape Town, Nelson Mandela Bay, Ekurhuleni, Johannesburg and Tshwane). However, from a point of view of those still wanting to acquire homes, ongoing real price growth caused by relative supply constraints is perhaps less good news at the lower income end of the market. Similar to the Suburban markets, new development activity in the Township markets and their surroundings are somewhat constrained by building costs that haven’t really been declining. And the real price growth The difference between former Township house price in the market is a reflection of a constrained supply growth and that of the higher priced “suburban” side relative to demand growth. This is less of an issue markets in recent times has in higher income markets, “As the year progresses it is been marginal. The 7.6% rate but at the low income end, reflects some real price growth, where the aim is to get being just above the consumer believed that Township house price everyone housed, this is a price inflation rate, and thus a growth will continue to moderately very significant challenge. solid market where demand is exceed that of the suburbs.” very well balanced with supply. At best, of late, we may be seeing building cost A portion of the country’s first inflation subside somewhat. time buyers enter the residential markets via either the The year-on-year inflation rate in the Producer Price established parts of the former “township” markets or Index for Building Materials slowed to 6.64% year-onvia so-called Affordable Housing Developments, many year in January, from a peak of 8.4% as at October 2013. 24 May 2014 SA Real Estate Investor SUBSCRIBE www.reimag.co.za

Real Estate Investor Magazine South Africa May 2014 | Page 26