The increase in electricity and water tariffs, as well as property rates and taxes, are fuelling demand for houses for sale in the smaller and more affordable segments, the latest statistics show.

Absa’s house price index for May shows continued strong growth in the average prices of houses for sale in the more affordable segment, with small houses (80-140m²) achieving price growth of 29,2% year-on-year. These numbers are based on the purchase price of mortgage loans approved by Absa.

The growth in the small segment is significantly higher than the growth in prices of houses for sale in the medium (141-220m²), with growth of 9%, and large (221-400m²), with growth of 6,4%, segments, Absa says.

While the affordability of housing has improved significantly over the past two years on the back of lower house prices and interest rates during this time, this trend seems to have turned around in late 2009, Absa says. The ratio of house prices and mortgage repayments on new loans to household disposable income showed a slight increase at the end of last year, while rising property rates and taxes as well as electricity and water tariff hikes are affecting the cost and affordability of running a property, Absa says.

First National Bank (FNB) also warns in its latest report that increased rates and taxes are bad news from a home affordability point of view. “It is no longer merely about the cost of buying a home and the cost of credit. The cost of running the home is fast becoming a key challenge,” FNB says.

Banks are forecasting further house price growth for the rest of the year, with FNB expecting an increase of 9,6% in average prices this year, compared to a decline of 3,5% in 2009. Growth of 4,7% and 7,3% is forecast for 2011 and 2012 respectively.

By ev3v4hn

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