Lower-priced suburbs catching up?

05-08-2004

South Africa’s middle-priced residential property boom is starting to lose momentum as buyers’ attention is by necessity diverted to lower-priced suburbs.

With house prices in the suburbs growing faster than buyers’ incomes, first-time home buyers are being forced to aim lower – with the result that growth in house-prices in lower-priced suburbs may outpace that of their middle-priced counterparts in the years to come.

Rode’s Report editor Garth Johnson says that from the mid 1980s, the gap between the prices of lower and middle-priced houses increased slowly, but since 2000 this gap has increased substantially. “Entry-level buyers are increasingly priced out of the market and will have to consider lower-priced suburbs as an alternative – especially the first-time buyer.

“Hence the tempo of growth in lower-priced suburbs relative to that of middle-priced areas will continue to increase. Of course, this implies that lower-priced houses will be playing some catchup with higher-priced houses. Ultimately, as these buyers build up equity and their wealth increases, the next round of increased interest in middle-priced houses will result,” Johnson says.

Rode’s indices suggest that since 1998, middle-priced homes showed a 12,4% compound growth rate per annum, while lower-priced home prices grew by only 7,2% over the same period. Even over the longer 19802003 period, the difference is as apparent: middle-priced homes grew at 11,1%, while lower-priced homes’ prices grew by 8,8%.