Fourth quarter 2017 City of Cape Town sub-regional house price indices continue to show some of the most expensive regions’ house price growth to be slowing noticeably.
But with very expensive home values in recent years in Cape Town encouraging a greater search for affordability, some of the city’s more affordable housing regions appear to have been performing quite well, says FNB.
“Overall, though, our deeds data-driven City of Cape Town house price index continued to show a gradually slowing price growth rate, albeit still strong,” said FNB property strategist, John Loos.
He said that in the fourth quarter of 2017, the City of Cape Town’s estimated average house price growth rate remained just within double-digit territory to the tune of 10.8% year-on-year.
“However, while still very strong, this year-on-year price growth rate represents the sixth consecutive quarter of slowing from a 10-year high of 15.7% recorded in the second quarter of 2016.”
The FNB City of Cape Town Sub-Regional House Price Indices still show widespread strength across much of the metro. However, six of the 12 defined sub-regions saw their year-on-year growth having slowed in the fourth quarter of 2017, and three of these were the three most expensive sub-regions.
“However, in the more affordable regions there still appears to be some ‘resilience’, with quite a few of these sub-regions showing recent price growth accelerations. This is not too surprising to see, given that the huge price growth of recent years in higher end sub-regions must surely have encouraged a more recent shift in some demand towards those more affordable sub-regions.
“But the fact that many sub-regions still see double-digit house price growth points to still very strong purchasing power in the City of Cape Town,” Loos said.
FNB said that in the fourth of 2017, there was a more noticeable sign of house price growth slowing down in the City Bowl and two of the three sub-regions closest to the City Bowl.
“These sub-regions near to the city and the mountain have inflated very strongly in recent years, and we suspect that resultant mounting home affordability challenges here are contributing to a “natural” price growth slow down,” Loos said.
The most expensive sub-region, in the City of Cape Town Metro, i.e. the Atlantic Seaboard, has seen its average house price growth slow from a multi-year high of 27.2% year-on-year in the final quarter of 2016 to 10% by the third quarter.
“It is possible that a slowing in the rate of foreigner buying of SA property last year, due we believe to a widespread negative sentiment towards South Africa at the time, could have had some negative impact on price growth in this sub-region which is typically big on foreign owners and buyers,” Loos said.
“But again, we believe that 122.8% cumulative house price growth of the past five years has been key in leading to major affordability challenges, which ultimate must slow demand in both foreigner and local demand alike.”
The City Bowl started its price growth slowdown a little earlier than the Atlantic Seaboard, and has gone from its multi-year year-on-year growth high of 23.5% in the second quarter of 2016 to 12.0% by the fourth quarter of 2017, the lender said.
The Southern Suburbs, the other one of the “most expensive 3” sub-regions, saw further slowdown from 12% in the prior quarter to 11.2% in the fourth quarter of 2017, having gradually tapered from a multi-year high of 16.3% in the second quarter of 2015.
“Interesting, is that the most affordable sub-region within close proximity to the City Bowl, i.e. the Near Eastern Suburbs sub-region – including amongst others Salt River, Woodstock and Pinelands – may be benefiting from the deterioration in affordability within the City Bowl region in recent years.
“Proximity to the City Bowl (and for that matter to Claremont Business Node) is becoming increasingly important as the city’s traffic congestion deteriorates, and we have yet to see noticeable slowdown in price growth in this sub-region. From a 16.8% “low in the second quarter of 2017, the Near Eastern Suburbs House Price Index showed renewed growth acceleration to 17.5% by the final quarter of last year, now showing the fastest price growth of any of the regions close to the mountain,” Loos said.
FNB said that many aspirant buyers have shifted their focus to these more “affordable” City of Cape Town housing markets a little further away, in search of greater affordability. “All three major Northern Suburbs sub-regions thus saw some renewed acceleration in their average house price growth rates in 2017,” Loos said.
Admittedly, in the final quarter of 2017 the Western Seaboard Sub-Region – including Blouberg, Milnerton and Melkbosstrand – saw a slowing in year-on-year price growth after a prior three quarters of acceleration, but still stood solid at 13.9%, he said.
The “Bellville-Parow and Surroundings” sub-region saw its price growth accelerate further, from 9.5% year-on-year in the final quarter of 2016 to 13.3% in the fourth quarter of 2017, while more recently the Durbanville-Kraaifontein-Brackenfell sub-region went from 8.9% growth in the second quarter of 2017 to 10% in the fourth quarter.
“Moving into even more affordable regions, ones which incorporate many of the city’s Apartheid Era former so-called “Coloured” and “Black” Areas, we have recently seen similar price growth accelerations.
“This, too, we believe could reflect a mounting search for relative affordability as higher priced “suburban” areas prices rise,” Loos said.
“We are not yet convinced. We believe the price growth slowing is more due to “market natural” causes in response to prior years of significant home affordability deterioration,” Loos said.
“Going forward, however, should the drought conditions deteriorate further, at some point it is conceivable that they may become “recessionary” for the Western Cape economy, should it reach a level where much industrial production needs to be scaled back and a lack of water hampers tourism and other economic sectors. A negative economic and employment impact should ultimately be a negative housing market impact. But we don’t believe that it has got to this level yet, and much will depend on this Winter’s rainfall.”