The FNB Southern Cape House Price Index remained near its decade high growth rates in the final quarter of 2017, and could continue its growth momentum in 2018 as ‘semigrants’ may look to bypass the Cape Town region in search of more affordable properties.
Semigrants are those people relocating to different parts of the country, rather than emigrating.
FNB’s index showed Southern Cape (including Mossel Bay, George, Knysna, Plettenberg Bay and Oudtshoorn) house price growth has still been at a relatively strong rate of 10.3% in the fourth quarter of 2017.
This, it said, was only marginally slower than the 10.4% rate of the previous quarter – a rate which was the highest year-on-year price growth rate since early-2007.
Looking back over the past five years, from the end of 2012, the Southern Cape House Price Index has ‘underperformed’ the overall Western Cape House Price Index – the Southern Cape inflating by a cumulative 42.9% since the final quarter of 2012, while the entire Western Cape market has inflated cumulatively by a stronger 74.6% over the same period.
“There was a time, back in the pre-2008 housing market bubble, when the Southern Cape had outperformed the Western Cape as a whole,” said property strategist at FNB, John Loos.
“That was the time when over-exuberance in the economy and in the housing market had led to major second home buying, including very strong holiday home buying in holiday town regions such as those in the Western and Southern Cape.”
However, since 2008, it has been a more rational market, as well as a more financially constrained household sector, implying that primary residential demand has been the main focus of the household sector, while holiday home demand has been, relatively-speaking, on the back-burner, Loos said.
“This, we believe, has been the key reason why the strongly holiday home-driven markets of the Southern Cape have ‘underperformed’ regions closer to the City of Cape Town Metro. The FNB City of Cape Town House Price Index has inflated cumulatively by an impressive 78.8%, while nearby towns have also seen high price growth over the past five years,” he said.
Outperformance relative to South Africa
But while the Southern Cape has ‘underperformed’ relative to the Western Cape as a whole, in recent years it has outperformed the national house price growth average, as well as showing better growth than holiday towns as a group nationally.
Loos said that the reason why the Southern Cape has outperformed the national average as well as holiday towns nationally, is likely due to its having been part of the most sought after region for ‘semigrants’. The migration of a very significant group of repeat home buyers in recent years to the Western Cape region has been well-documented.
The province has had by far the strongest net inflow of repeat home buyers of any of the country’s 9 provinces, as higher income people have searched for a better perceived quality of life.
“Most of these ‘semigrants’ have been economically productive people, making the larger City of Cape Town and surrounding economy the most attractive targeted sub-region of the province, given the large size of the Cape Town economy, FNB said.
“However, a significant portion of these semi-grants have been retirees from other provinces. The Southern Cape has benefited significantly from the arrival of these retiree ‘semigrants’, as well as from a small group of economically productive “semi-grants”, although we perceive both groups to tended more towards Cape Town and its surrounding towns in greater numbers,” Loos said.
Will the Southern Cape benefit from Cape Town’s home affordability deterioration?
But what happens next?
According to Loos, Cape Town and its nearby towns have seen significantly stronger house price inflation over the years than has the Southern Cape Region.
“This means that home affordability nearer to, and within, Cape Town has deteriorated more significantly than the Southern Cape, and indeed more than most regions in South Africa,” he said.
“The expected result, we believe, is that a growing portion of ‘aspirant semigrants’ will search for more affordable residential regions with the quality of life they desire. This could well make the Southern Cape a more desirable destination in the near future.”
“While the region has its limits from an economic opportunity point of view, for aspirant retirees it offers a very high quality of life, along with being arguably more affordable than Cape Town these days, and in addition not possessing the growing congestion of the City of Cape Town and its surrounding towns,” Loos said.
FNB stressed however, that the Southern Cape will not be without competition from other regions.
In the past five years, the Durban North Coast has only seen house price growth of 31.4%, while the Durban South Coast has seen a lesser 28% growth, lower than the Southern Cape’s cumulative 42.9%. So a portion of the aspirant ‘semigrant’ population from inland regions such as Gauteng may look in greater numbers towards the KZN coast too, Loos said.
Southern Cape Sub-Region house price growth
Looking at the average house price growth of the four sub-regions of the Southern Cape, on an annual average basis in order to mitigate the small sample size, FNB recorded the George-Oudtshoorn House Price Index as showing the fastest inflation rate, to the tune of 17.1% in 2017, while second was the Mossell Bay Region’s Index with 12.7%.
Bitou Municipality, which includes Plettenberg Bay, showed a still solid 9.77%, but Knysna appeared to be in the relative ‘doldrums’ with price growth of 6.3%, the slowest sub-region. The Knysna rate of growth had slowed significantly from 12.5%, FNB said.