The determinants of residential house prices in South Africa¶
Standish, B.; Lowther, B.; Morgan-Grenville, R.; Quick, C. (2005). The determinants of residential house prices in South Africa. Investment Analysts Journal, No. 61.
| Type | journal article |
| Scope | Post-1994 South African economy |
| Method | econometric |
| Period studied | 1974–2003 |
| Regions | South Africa (national) |
| Themes | macro fiscal finance debt, demography urbanisation, methods data sources |
| Citation key | standish2005 |
Argument¶
The paper asks whether robust models can forecast South African residential house prices and whether there is a property bubble. Drawing on the international literature (interest rates, income, affordability, rents, sentiment, wealth, crime), it runs stepwise regressions on quarterly ABSA house price data for 1974-2003 and 1994-2003. Net migration, JSE capitalisation, FDI, the real rand gold price and the rand-dollar rate explain the long-run series, while household debt-to-income, FDI and the gold price explain the 1994-2003 series. Real interest rates are surprisingly absent from both. The authors conclude that the better-fitting short model should be given prominence, so prices are unlikely to fall significantly.
Evidence and method¶
Quarterly ABSA smoothed average purchase price of new and existing houses 1974-2003; SARB data on interest rates, income, household debt and the real effective exchange rate; Statistics South Africa data on net migration, tourism and crime; DataStream data on JSE capitalisation and exchange rates. Annual series were converted to quarterly by four-period moving averages. Reviews of the international academic and industry literature (FPDSavills, ABSA, Standard Bank).