Property Barometer - March 2016

In March 2016, the FNB House Price Index recorded a 6.0% year-on-year rate of increase, which is slower than the revised rate of the prior month. This mild slowing is believed to be further sign of a weak economy and rising interest rates gradually taking effect on the residential market, slowing demand for housing. FNB Valuers’ market perceptions have been supportive of the expectation of slowing house price growth to come, with some mild market weakening in the Valuers’ Market Strength Index (MSI) having been recorded of late. However, there are some indications that the pace of deterioration in the MSI, as well as the pace of deterioration in certain key economic indicators, may have slowed at least.

KEY POINTS

• The FNB House Price Index showed a year-on-year increase of 6.0% in March 2016, slower than the revised 6.2% of the previous month. The most recent months’ house price growth rates are mildly down off the 6.9% 2015 high point of October.
• FNB’s Valuers, as a group, appear to have provided support for the expectation of slower house price growth in recent months, with the FNB Valuers’ Market Strength Index (MSI) having declined in months prior to March, on the back of slowing residential demand.
• We forecast an average house price inflation rate of 4.8% for 2016, slower than the 6% recorded for 2015.
• Our expectation of slower house price growth in 2016 has to do with the expectation that real economic growth will slow further from 1.3% in 2015 to 0.5% this year. Depressed export commodity markets, along with a severe drought, are key to this slower growth forecast, as are rising interest rates.
• We expect further gradual interest rate hiking through 2016, to a level where Prime Rate ultimately peaks at 11.0% next year, from a current level of 10.5%.
• On the Commercial Property side, IPD figures released last month showed Retail Property Returns to have outperformed those of Industrial and Office Space. This, we believe, may be partially explained by last year’s temporary dip in consumer and retail price inflation, which contributed to real retail sales growth actually having been faster than that of 2014, and noticeably exceeding real economic growth.

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