By Siphamandla Mkhwanazi & Koketso Mano.
Property prices steady in July as buyer preferences shift
The FNB House Price Index (HPI) remained steady in July, averaging 3.7% y/y (Figure 1), with June figures revised upward from 3.2% to 3.7%. This marks a notable shift, as house prices are now rising faster than inflation. For the first time in the post-pandemic era, equity values generated by sectional title properties marginally outpaced those of freestanding homes (3.8% vs. 3.7%) (Figure 2).
The shift in buyer sentiment towards sectional title properties likely reflects evolving lifestyle preferences and affordability constraints. Following a relatively aggressive hiking cycle (2021-2023) and persistent real wage underperformance since 2021, buyers appear to be gravitating toward more compact, cost-effective housing options. Additionally, with more companies embracing the back-to-office trend, the need for larger spaces, once driven by work-from-home requirements, has diminished. As such, the pandemic-induced premium for bigger homes appears to have waned.
Trends in property development
The upward trend in sectional title values persists despite a seemingly pre-emptive response from developers. Year-to-date, supply of new flats and townhouses, typically sold or leased as sectional titles, rose to 4 866 units (+13.5%). However, this increase follows years of decline and should be viewed in the context of base effects. Pipeline supply remains weak and year-to-date, building plans approved by municipalities for new flats and townhouses are down 21.2%, suggesting continued supply constraints (Figure 3). This imbalance is likely to support further price growth in the sectional title segment, particularly in well-located areas with strong amenities and transport links. The lag in new approvals may reflect developer caution amid regulatory delays, rising costs, and uncertainty around municipal service delivery.
Overall, current and projected supply dynamics support a sustained upward trend in sectional title property values. These developments reinforce our view of a broader residential price cycle, underpinned by easing inflation, lower borrowing costs, and modest real wage gains.
Note on the FNB Valuers' Market Strength Index:
When an FNB valuer values a property, he/she is required to provide a rating of demand as well as supply for property in the specific area. The demand and supply rating categories are a simple "good (100)", "average (50)", and "weak (0)". From all of these ratings we compile an aggregate demand and an aggregate supply rating, which are expressed on a scale of 0 to 100. After aggregating the individual demand and supply ratings, we subtract the aggregate supply rating from the demand rating, add 100 to the difference, and divide by 2, so that the FNB Valuers' Residential Market Strength Index is also depicted on a scale of 0 to 100 with 50 being the point where supply and demand are equal.
ADDENDUM - NOTES:
Note on The FNB House Price Index:
The affordable market: The buying-down effect, combined with stock shortages, helped sustain volumes and property price growth in lower priced segments in 2023. This shift in buying patterns will be less supportive this year, as affordability eases. In addition, the interest rate reprieve will filter through with a longer lag, as some prospective buyers take time to repair their credit records. As such, we anticipate a marginal decline in annual volumes, and slower price growth in the segment. That said, we are encouraged by the continued innovations in the segment to improve access and affordability, such as longer mortgage terms; collective buying options; and more streamlined administration of FLISP. These will continue to support activity.
The FNB Repeat Sales House Price Index has been one of our repertoire of national house price indices for some years, and is based on the well- known Case-Shiller methodology which is used to compile the Standard & Poor's Case-Shiller Home Price Indices in the United States.
This "repeat sales approach" is based on measuring the rate of change in the prices of individual houses between 2 points in time, based on when the individual homes are transacted. This means that each house price in any month's sample is compared with its own previous transaction value. The various price inflation rates of individual homes are then utilized to compile the average price inflation rate of the index over time.
The index is compiled from FNB's own valuations database, thus based on the residential properties financed by FNB.
We apply certain "filters" and cut-offs to eliminate "outliers" in the data. They main ones are as follows:
Note on the FNB Valuers' Market Strength Index:
When an FNB valuer values a property, he/she is required to provide a rating of demand as well as supply for property in the specific area. The demand and supply rating categories are a simple "good (100)", "average (50)", and "weak (0)". From all of these ratings we compile an aggregate demand and an aggregate supply rating, which are expressed on a scale of 0 to 100. After aggregating the individual demand and supply ratings, we subtract the aggregate supply rating from the demand rating, add 100 to the difference, and divide by 2, so that the FNB Valuers' Residential Market Strength Index is also depicted on a scale of 0 to 100 with 50 being the point where supply and demand are equal.
