By: Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole, Koketso Mano
Stats SA's RPPI: A hedonic approach
The RPPI utilises a hedonic pricing model to assess property values. This method looks at how the features of a property, like its size, location, and number of bedrooms, affect its price. This method works well in areas with significant variation in housing characteristics, as it adjusts for these differences. However, this approach is not without limitations. The quality of the underlying data can influence accuracy, and the model's effectiveness hinges on the relevance of the selected attributes.
Stats SA's RPPI model incorporates three key property attributes: location, property type (freehold or sectional title), and size. It leverages the comprehensive Deeds data, encompassing all property transactions within South Africa. This data source makes the RPPI a highly representative index. However, several practical limitations arise. Firstly, despite rigorous cleaning efforts, the Deeds data remains susceptible to contamination. For instance, distinguishing between vacant and non-vacant land, or commercial and residential properties, can be challenging. Secondly, the limited property attribute information available in the Deeds data makes it difficult to track evolving consumer preferences, such as the growing demand for energy-efficient homes. Lastly, the Deeds data carries an administrative lag of approximately six months, meaning that the RPPI may not reflect the most recent market trends in a timely manner.
FNB's HPI: A repeat sales approach
In contrast, FNB's HPI uses the repeat sales method, which tracks price changes for the same property over time. This approach avoids the need for detailed data on property attributes, making it relatively straightforward. However, it can be prone to selection bias as it relies on properties sold multiple times. This may lead to underrepresentation of markets with low turnover rates, such as lower-income or less active areas. Additionally, FNB's HPI is based on internal valuations conducted by professional property valuers. While these valuations are reliable and reflect current market trends, they are drawn from a smaller sample of properties—specifically, those financed by the bank. As a result, the index may not always fully capture trends in the broader housing market.
While both the RPPI and FNB HPI provide valuable insights into the domestic housing market, their distinct methodologies, data sources, and scopes offer different perspectives. Figures 1 and 2 show that while they may produce slightly different results, they generally align in terms of overall trends. That said, it is crucial to consider the nuances and limitations of each index when interpreting the data, to gain a more comprehensive understanding of the South African housing market.
Table 1: Comparative analysis: Summary
| Hedonic Price Index/RPPI | Repeat Sales Method/HPI | |
|---|---|---|
| Data requirements | Detailed attributes of all properties | Transaction pairs of the same property |
| Adjusts for quality | Yes, using regression | Implicitly (same property) |
| Sample bias | Risk of omitted variable bias | Excludes single-sale properties |
| Sensitivity to change | Captures shifts in attribute importance | Ignores quality changes over time |
| Computational demand | High | Moderate |
| Data source | Deeds | Internal property valuations database |
| Time lag | Up to 6 months | Current |
Week in review
The FNB/BER Building Confidence Index remained unchanged at 40 index points in 4Q24. While this indicates that most respondents (60%) are still dissatisfied with current business conditions, there are some positive developments. Main contractors experienced a significant improvement in activity, employment, and profitability, leading to a decade-high confidence level. This was driven by increased activity, particularly in residential building, which partially recovered after a weak performance in previous quarters. Non-residential activity also continued to increase, albeit from a low base. However, despite the positive momentum, main contractors are still concerned about the short-term outlook due to weak order books and the ongoing impact of the construction mafia. Sub-contractors, on the other hand, faced challenges due to a decline in residential solar installations, leading to decreased confidence. While building material manufacturers saw some improvement in production and reduced costs, overall confidence remains low. Architects and quantity surveyors experienced some improvement in activity but were hindered by municipal delays and payment issues. Overall, the survey shows a mixed outlook for the building sector. While current work is generally plentiful, capacity constraints at a municipal level and security issues at construction sites linger, weighing on sentiment.
The business cycle leading indicator increased by 0.9% m/m in September, recording 113.9 index points from 112.8. The index was also 2.0% higher than a year ago, highlighting the continued improvement in economic conditions relative to last year. Four of the eight constituent variables increased, led by accelerated trend growth in money supply and the number of building plans that have been approved in the residential market. Mitigating the gains was a deceleration in the trend growth of new passenger vehicle sales and a narrower interest rate spread.
Producer inflation entered deflationary territory in October, with prices falling by 0.7% y/y. This marks a significant and prolonged moderation from the peak of 18.0% recorded in July 2022. On a month-on-month basis, prices also declined by 0.7%, the fifth consecutive month of contraction. Excluding petroleum-related products, producer inflation stood at 2.7% y/y and recorded a marginal decline of 0.2% m/m. Intermediate producer inflation, which reflects manufacturer input costs, rose to 5.5% y/y in October from 4.8% in September, largely reflecting base effects as a monthly decline of 0.4% was recorded. The overall decline in producer inflation to -0.7% y/y was driven primarily by sharp decreases in petrol and diesel prices, which fell by 22.2% and 26.9% y/y, respectively. Transport equipment prices also remained in deflation for the sixth consecutive month, weighed down by declining costs for parts. Meanwhile, inflation for food, beverages, and tobacco eased slightly to 3.6% y/y from 3.8% y/y in September.
Private sector credit extension (PSCE) grew by 4.3% y/y in October, slowing from the 4.6% increase recorded in September. Household credit increased by 3.2% y/y, slightly lower than the 3.3% growth in September, but inflation-adjusted growth reached 0.4% as inflation decelerated faster than credit growth. Corporate credit growth moderated to 5.2% y/y from 5.7% in September, but still outpaced inflation by 2.3%.
Within household credit, unsecured general loans and advances contracted by 1.2% y/y, marking the seventh consecutive month of decline. Growth in mortgage advances slowed to 2.3% from 2.4% in September, while instalment sales credit, primarily vehicle finance, expanded by 7.3%, marginally down from 7.4% in the previous month. On the corporate side, instalment sales credit grew by 6.9%, reflecting a deceleration from 7.3% in September. However, corporate mortgage advances strengthened, rising by 4.9%, compared to 4.6% in September. General loans and advances to corporates also accelerated, with growth increasing to 4.5% y/y from 3.8% in September.
Week ahead
On Monday, the Absa manufacturing PMI for November will be published. In October, the PMI declined to 52.6 index points, from 53.3 in September. Although recording some slowing, the index remained above the neutral level - indicating that manufacturing activity remained expansionary. The PMI was supported by improved business activity, which lifted from 51.5 points to 55.6, and, although new sales orders slowed slightly from 56.2 points to 54.8, they remained above the neutral mark and suggest conducive demand conditions. Encouragingly, supplier performance appears to be improving and better able to cope with demand. Near-term expectations remain upbeat, and should be supported by falling inflation, lower interest rates, and generally improving consumer dynamics.
Also on Monday, data on new vehicle sales for November will be released. New vehicle sales recorded 47 924 units in October, up by 2 506 units or 5.5% relative to October 2023. Passenger car sales recorded an increase of 14.5% y/y, with car rental sales accounting for 19.8% - supported by seasonal demand. Light commercial vehicles, bakkies, and mini-bus sales declined by 12.7% y/y, while medium and heavy truck and bus sales declined by 10.1% y/y and 7.1%, respectively. Slower inflation and a continued fall in interest rates should support the consumer environment, providing further impetus to passenger car sales going into 2025.
On Tuesday, data on GDP for 3Q24 will be released. In 2Q24, GDP grew by 0.4% q/q (seasonally adjusted) and 0.3% y/y (non-seasonally adjusted). Growth in that quarter was broad-based, with positive contributions from seven out of ten sectors. However, GDP demand components showed a mixed performance: household and government spending rebounded, while fixed investment and exports contracted. For 3Q24, we expect GDP growth momentum to have been sustained, at an increase of 0.3% q/q and 1.1% y/y. This is supported by quarterly increases in electricity and mining production, along with marginal improvements in manufacturing output. Retail trade sales will also provide support to GDP growth, but this will be counteracted by a decline in wholesale and motor trade sales. The volatile agricultural sector remains a potential swing factor, which could either bolster or weaken overall growth outcomes.
On Wednesday, the FNB/BER Consumer Confidence Index (CCI) will be released. In 3Q24, the CCI continued to improve, rising by seven index points to -5, marking the highest level in five years. The positive momentum was supported by factors such as the formation of a Government of National Unity, the absence of load-shedding, a stronger rand, lower inflation, and the implementation of the two-pot retirement system. Across income groups, high-income households saw the most significant improvement, followed by middle-income households. By contrast, sentiment among lower-income households backpedalled in 3Q24.
On Thursday, data on the current account for 3Q24 will be published. The current account deficit narrowed significantly again in 2Q24. It recorded R64.6 billion, from R106.9 billion in 1Q24, and 0.9% of GDP, from 1.5% previously. The improvement was supported by a wider trade surplus on goods, which increased from 2.3% of GDP to 2.6%. The lift in total export values reflected higher prices, while that in total import values was on account of both prices and volumes. The services, income, and transfer account deficit also narrowed, from R272. 7 billion to R252.1 billion and 3.8% of GDP to 3.4%. This was a result of a narrower primary income account deficit. South Africa's terms of trade also improved, highlighting the gains from rangebound oil prices and rising gold prices over 2Q24. Since then, oil prices have softened, and gold prices have remained resilient. This data suggests that the deterioration in the current account deficit that is anticipated for this year may be limited. However, logistical constraints remain a key hindrance to export growth and, alongside rising domestic demand, increases the odds of worse current account dynamics over the medium term.
Also on Thursday, data on electricity generated and available for distribution for October will be released. Electricity production growth was 8.5% y/y in September, up from 6.3% in August. Seasonally adjusted electricity production increased by 1.6% m/m, after falling by 0.7% in the previous month. Over the third quarter, electricity production grew by 2.9% on average, and would have contributed to overall economic growth.
On Friday, data on SA's foreign exchange reserves for November will be published. SA's gross foreign exchange reserves fell to $63.0 billion in October, from $63.6 billion in September. While gold reserves continued to rise, Special Drawing Rights (SDR) holdings and foreign exchange reserves declined. There were payments made on behalf of the government, including a partial repayment of an International Monetary Fund loan.
Tables
The key data in review
| Date | Country | Release/Event | Period | Act | Prior |
|---|---|---|---|---|---|
| 25 Nov | SA | FNB/BER Building Confidence Index | 4Q24 | 40.0 | 40.0 |
| 26 Nov | SA | Leading Indicator | Sep | 113.9 | 112.8 |
| 28 Nov | SA | PPI % m/m | Oct | -0.7 | -0.3 |
| SA | PPI % y/y | Oct | -0.7 | 1.0 | |
| 29 Nov | SA | Private Sector Credit Extension % y/y | Oct | 4.3 | 4.6 |
Data to watch out for this week
| Date | Country | Release/Event | Period | Survey | Prior |
|---|---|---|---|---|---|
| 2 Dec | SA | Manufacturing PMI | Nov | -- | 52.6 |
| SA | New vehicle sales % y/y | Nov | -- | 5.5 | |
| 3 Dec | SA | GDP % q/q | 3Q24 | 0.4 | 0.4 |
| SA | GDP % y/y | 3Q24 | 1.2 | 0.3 | |
| 4 Dec | SA | Consumer Confidence Index | 4Q24 | -- | -5.0 |
| 5 Dec | SA | Current Account Balance R bn | 3Q24 | -- | 64.6 |
| SA | Current Account Balance % of GDP | 3Q24 | -- | 0.9 | |
| SA | Electricity production % y/y | Oct | -- | 8.5 | |
| 6 Dec | SA | Gross foreign exchange reserves $ bn | Nov | -- | 63.0 |
Financial market indicators
| Indicator | Level | 1W | 1M | 1Y |
|---|---|---|---|---|
| All Share | 84,787.41 | -0.9% | -3.3% | 12.7% |
| USD/ZAR | 18.11 | 0.0% | 2.3% | -3.4% |
| EUR/ZAR | 19.11 | 0.8% | -0.1% | -7.1% |
| GBP/ZAR | 22.98 | 0.8% | 0.1% | -3.5% |
| Platinum US$/oz | 935.02 | -3.0% | -9.5% | 0.0% |
| Gold US$/oz | 2,637.92 | -1.2% | -3.8% | 29.0% |
| Brent US$/oz | 73.28 | -1.3% | 2.6% | -11.8% |
| SA 10 year bond yield | 9.58 | -0.1% | -3.0% | -11.2% |
FNB SA Economic Forecast
| Economic Indicator | 2022 | 2023 | 2024f | 2025f | 2026f | 2027f |
|---|---|---|---|---|---|---|
| Real GDP %y/y | 1.9 | 0.7 | 1.0 | 1.9 | 1.9 | 2.2 |
| Household consumption expenditure % y/y | 2.5 | 0.7 | 1.4 | 2.3 | 2.1 | 2.4 |
| Gross fixed capital formation % y/y | 4.8 | 3.9 | -0.8 | 5.4 | 3.9 | 5.3 |
| CPI (average) %y/y | 6.9 | 6.0 | 4.5 | 4.3 | 4.7 | 4.5 |
| CPI (year end) % y/y | 7.2 | 5.1 | 3.4 | 5.0 | 4.6 | 4.5 |
| Repo rate (year end) %p.a. | 7.00 | 8.25 | 7.75 | 7.00 | 7.00 | 7.00 |
| Prime (year end) %p.a. | 10.50 | 11.75 | 11.25 | 10.50 | 10.50 | 10.50 |
| USDZAR (average) | 16.40 | 18.50 | 18.20 | 17.50 | 18.20 | 18.80 |
