Rising electricity and water rates, as well as real estate fees and taxes, are fueling demand for homes for sale in the smallest and most affordable segments, the latest statistics show.

The Absa House Price Index for May shows continued strong growth in average home sales prices in the most affordable segment, with small houses (80-140m²) achieving price growth of 29.2% year with year. These numbers are based on the purchase price of Absa-approved mortgage loans.

The growth in the small segment is significantly higher than the growth in the prices of houses for sale in the medium segments (141-220m²), with a growth of 9%, and large (221-400m²), with a growth of 6, 4%, Absa says.

While home affordability has improved significantly in the past two years due to lower home prices and interest rates during this time, this trend appears to have changed by the end of 2009, Absa says. The relationship between house prices and mortgage repayments on new loans and household disposable income showed a slight increase at the end of last year, while increases in real estate fees and taxes, as well as increases in electricity and water rates, are affecting the cost and affordability of managing a property. says Absa.

First National Bank (FNB) also warns in its latest report that rising rates and taxes are bad news from a housing affordability standpoint. “It’s no longer simply about the cost of buying a home and the cost of credit. The cost of managing the home is quickly becoming a key challenge,” says FNB.

Banks forecast further house price growth for the rest of the year, and FNB expects a 9.6% rise in median prices this year, compared with a 3.5% drop in 2009. a growth of 4.7% and 7.3% for 2011 and 2012 respectively.