Fin24

Price of new homes hit average R1.8m

By: Fin24 2013-11-07 16:16
Cape Town - Nominal year-on-year (y/y) house price growth in the middle segment of the market - homes of 80m² to 400m² and priced up to R3.8m in 2013 - slowed down in the third quarter of the year from the second quarter, according to the latest Housing Review of Absa [JSE:ABSP].

Lower price growth was evident in all middle-segment categories.

In real terms - that is after adjustment for the effect of inflation - y/y house price growth in the middle segment was lower in the third quarter compared with the second quarter.

It was driven by a combination of lower nominal price growth and higher inflation.

Although barely positive, lower nominal y/y price growth occurred in the category for affordable housing in the third quarter of the year from the second quarter, whereas price growth in the luxury segment improved further in the third quarter.

The nominal price of a property refers to the price at which it was valued or transacted on the open market - that is the market price, selling or purchase price.

The nominal price will be reflected in a valuation, an offer to purchase, an application for mortgage finance and in the transfer documentation at registration.

The real price of a property is the nominal price adjusted for the effect of inflation, and is calculated to determine if the value of a property has increased at a rate of above or below the inflation rate.

In addition to the nominal price, real price trends and growth are important from a property investment point of view.

House price trends continued to be a reflection of property market conditions and related factors, which are affected by a combination of macroeconomic developments, the state of household finances and the level of consumer confidence.

Affordable housing

Y/y growth in the average nominal price growth of affordable housing - homes of 40m² to 79m² and priced up to R515 000 in 2013 - continued its gradual downward trend, coming in at 0.9% in the third quarter of 2013 after peaking at 7% in the third quarter last year.

In real terms prices in the affordable segment dropped by 5.2% y/y in the third quarter this year.

The average price of a home in the affordable segment of the market was R342 000 in the third quarter of 2013.

Middle-segment housing

The average price of a middle-segment home was about R1 172 100 in the third quarter.

The following price changes occurred in the three middle-segment categories in the second and third quarters of 2013:

Luxury housing

Nominal price inflation in the segment of luxury housing - homes priced at between R3.8m and R13.8m in 2013 was recorded at 7.3% y/y in the third quarter of 2013 from 4.6% y/y in the second quarter.

This brought the average price of a luxury home to a level of R5 132 300 in the third quarter.

New houses

The average nominal price of a new house for which Absa received and approved applications for mortgage finance increased by 14% y/y to about R1 811 300 in the third quarter of 2013, after rising by 10.6% y/y in the preceding quarter.

In real terms, the average price of a new home rose by 7% y/y in the third quarter from 4.5% y/y in the second quarter.

The acceleration in the average price of a new house is related to the jump in building costs over the past three quarters compared with a year ago.

The average price of an existing house increased by a nominal 8.4% y/y to R1 138 900 in the third quarter, after rising by 11.1% y/y in the second quarter.

Real price growth of 1.8% y/y was recorded in the third quarter with regard to existing homes, down from 5% y/y in the second quarter.

Land price

The average price of land for new middle-segment and luxury housing amounted to almost 28% of the total value of a new residential property in this category over the past 3½ years.

This will continue to reflect the important factor of location, as well as the availability of suitable land for development, the availability of municipal services such as electricity, water, sewerage and refuse removal, and the availability and condition of transport infrastructure, said the report.

- Fin24

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