Property Talk

The current economic environment as measured by GDP growth remains weak and household income growth in turn remains weak. The cost of money or debt, a critical ingredient to the property buying process, has increased over the past two years, effective personal tax rates have risen, and municipal rates and tariff increases have outpaced general inflation.

Transfer duties have over the past few years significantly increased the cost of transacting in property for the higher priced and larger homes. It is therefore not surprising that the smaller homes have attracted more demand and continued to outperform the price growth of the medium and large-sized homes in the 3rd quarter of 2016.

As part of FNB's home price research they have compiled the price index into three size categories, being the small-sized segment (20-80 sqm), the medium-sized segment (80-230 sqm) and the large-sized segment (230-800 sqm). It is hard to imagine a 20sqm home - this would be the size of the normal single garage. Equally for many people it may be hard to imagine a home as large as 800 sqm. The price growth performance for the small sized segment of the market measured 8,1% in the 3rd quarter of 2016.

The large-sized home category reported 3% growth in the 3rd quarter. This was marginally up from the 1% measured in the 1st quarter for the large-home segment. With CPI inflation averaging 6%, anything less than this represents negative real growth and means that your home value is being eroded by the difference.

The impact of inflation is negligible over the short term but over an extended period of time the effects can be severe and pronounced. Nominal price growth of residential homes is therefore not nearly as important to keep a track of than real price growth.

The difference in the price performance between the large and small sized homes over an extended period of 15 years from 2001 is interesting to note and provides some insight into a cumulative effect over time. The small-sized segment has inflated by 372,9% over the 15 year period since the 1st quarter of 2001, the medium-sized segment by 351,9% and the large-sized segment by a significantly lesser amount of 285,3%.

For further information and an interactive analysis of this article follow my blog: andreaswassenaar.blogspot.com.