Platteland prices 'not crazy'

ALTHOUGH some people may believe that house price growth has gone “crazy” in small, rural inland towns, they have merely experienced the same property boom as the rest of the country, says First National Bank property strategist John Loos.

The major price growth in these so-called “platteland” towns was not a reflection of a change in their relative economic fortunes but rather the result of the effect of a lower interest rate environment, he said.

This was no different to what had happened in the larger metropolitan centres, Loos said.

Even though there had been a price surge in the provinces in which these small towns were found, the growth was still far behind that in SA’s economic capital, Gauteng.

Some of the smaller rural provinces were “actually showing superior house price inflation” rates compared with larger metropolitan areas, he said. “When it comes to property cycles, I don’t think it is a case of the platteland going crazy. Some people are very surprised at the rate of house price inflation in recent years in smaller towns, especially because these towns don’t show a lot of economic growth,” said Loos.

“Where we may be missing the point is that the biggest driver of the property boom was interest rates and every town in the country faces the same interest rate trend. We shouldn’t be surprised that most towns have experienced a property boom.”

The smaller provinces surrounding Gauteng have all had much lower total price inflation than Gauteng.

In 2005, the average house price in Gauteng was 235% higher than the average in 1998. In Limpopo, the average house price was 173% higher in 2005 than in 1998, while Mpumalanga showed a 189,6% increase. Free State, excluding Bloemfontein, showed a 134,5% increase, while North West a 191,9% increase.

“Gauteng was well superior during this period in terms of house price inflation and economic growth. During the boom, Gauteng further extended its lead in terms of both the strength of its economy and level of house prices.”

But Loos said that in the future, housing trends would reflect a “tale of two plattelands, with mineral-rich platteland areas and those nearer metros faring far better than far-flung towns”.

As large metropolitan areas grew, he said, some of the platteland areas would gradually be partly or “fully absorbed” by the metropolitan centres.

He said areas northwest of Tshwane such as Brits and Hartbeespoort Dam were good examples.

“As Gauteng runs out of space, and as existing space becomes more pricey in these metros, so new industrial and commercial activity looks for new places to happen.”

“This was benefiting smaller towns such as Brits as well as other surrounding towns, ultimately perhaps even as far afield as Witbank and Middelburg to the east and Potchefstroom and Klerksdorp to the west in years to come.”

Article by: Nick Wilson - www.businessday.co.za