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Land values and home affordability

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Land values and home affordability

12 Mar 2014

According to the Absa Housing Review Q1 2014 report, the value of land for new housing in the middle and luxury segments increased by a nominal 4.2 percent year-on-year (y/y) to an average of about R536 000 in Q4 2013 down from 9.1 percent y/y in the preceding quarter.

According to the Absa Housing Review Q1 2014 report, the value of land for new housing in the middle and luxury segments increased by a nominal 4.2 percent year-on-year (y/y) to an average of about R536 000 in Q4 2013 down from 9.1 percent y/y in the preceding quarter.

In real terms residential land values were down by 1.1 percent y/y in Q4 after having risen by a real 2.7 percent y/y in the third quarter, says Jacques du Toit, Absa Home Loans property analyst.

He explains that the average price of land for new middle-segment and luxury housing, which amounted to 26.5 percent of the total value of a new residential property in this category in 2013, will continue to reflect the all-important factor of location, as well as the availability of suitable land for development, the availability of municipal services such as electricity, water, sewerage and refuse removal, the availability and condition of transport infrastructure and the proximity to places of work, schools, shopping centres, and medical facilities.

Du Toit points out that home affordability remained favourable in 2013, as reflected by the ratios of house prices and mortgage repayments to household disposable income - the  result of trends in house price and income growth, while the mortgage interest rate was unchanged at 8.5 percent per annum in 2013.

Although mortgage interest rates were low in 2013, many households still could not afford to buy property as many were affected by factors such as unemployment, income, savings, living costs, debt levels, as well as credit-risk profiles (as reflected by the state of consumer credit records), the NCA and banks’ lending criteria in the case of mortgage loan applications for buying property.

A downward/upward trend in the abovementioned two housing affordability ratios implies that house prices and mortgage repayments are rising at a slower/faster pace than household disposable income, he adds. - Denise Mhlanga

 

Author: Denise Mhlanga - Prop 24

Submitted 12 Mar 14 / Views 5028