Township property outperforms suburbs: FNB

House price growth in former black townships, as classified during apartheid, marginally outperformed homes in former white suburbs in the third quarter of 2014, First National Bank said on Monday.

Like suburban markets, former black townships reflected a good balance between demand and supply, FNB household and property sector strategist John Loos said in a statement.

However, demand was not far outstripping supply, which would lead to boom time price inflation.

Former black townships, within the six metropolitan regions, saw house price growth of 9.5 percent year-on-year in the third quarter, as shown by the FNB house price index.

This remained higher than the overall major metro regions house price index growth rate of seven percent for the period, and beat the second quarter's 9.4 percent.

The major metro regions price index consisted of Ethekwini, Cape Town, Nelson Mandela Bay, Ekurhuleni, Johannesburg, and Tshwane.

"These township markets are believed to have been a bit more supply constrained than the higher priced suburban markets," Loos said.

This was in the face of recent "strong levels" of entry level home buying in a very low interest rate environment, which arguably reflected in marginally higher average price growth.

"However, it is important to note that these township areas remain on average right at the low end of the market in terms of house prices, averaging R307,668 in terms of what was transacted in the 3rd quarter."

The former townships were in a slow process of normalising as property markets, as a residential property industry developed within them.

Retail and other industries were slowly emerging as they moved towards being more mixed use areas.

"However, this relatively low average transacted home value still compares poorly with our overall major metro house price estimate of R1,120,304, based on what was transacted in the 3rd quarter," Loos said.

"This huge price differential is arguably a good indicator of how far we still have to go in terms of increasing the purchasing power in these previously disadvantaged areas."

Many previously disadvantaged areas were on the periphery of major cities, causing residents to incur high transport costs to work, often long distances away.

"This is an inefficient situation," Loos said.