Second quarter 2018 City of Cape Town sub-regional house price indices continued to show the high end markets around the mountain to be slowing. However, the slowdown has broadened, and an increasing number of regions saw price growth slowing over the period, according to FNB data.
“Despite good recent rains and signs of drought alleviation in the region, which is good for its economy and sentiment, we remain of the belief that poor levels of home affordability in the region, after strong house price growth in recent years, will cause house price growth to continue to slow in the near term,” said John Loos, household and property sector strategist at FNB.
He said that household incomes in the region will need to catch up with house prices before another strong house price growth period.
Using deeds office data, FNB said that in the second quarter of 2018, the City of Cape Town’s estimated average house price growth rate continued to slow, recording 8.7% year-on-year.
This year-on-year price growth rate represents the eighth consecutive quarter of slowing from a 10-year revised high of 15.4% recorded in the second quarter of 2016, the lender said.
It said that in the second quarter, further slowing in house price growth in the City Bowl was recorded, along with two of the three major sub-regions closest to the City Bowl, i.e. in and around the Cape Peninsula.
“These sub-regions near to the city and the mountain have shown some of the strongest house price inflation of all of the Cape Town sub-regions over the past five years, and this prior deterioration in home affordability appears to have led to slowing demand, and thus price growth, in recent quarters,” said Loos.
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 the most sharply off the highest base, from a revised multi-year high of 27.7% year-on-year in the final quarter of 2016 to 1.9% by the second quarter of 2018, and now has the slowest price growth of all of our City of Cape Town regions.
“This remains as we had expected, as this sub-region had until recently experienced the most rapid growth of all the sub-regions.”
The Southern Suburbs, the other one of the “most expensive three” sub-regions, saw further slowdown from 8.6% in the prior quarter to 7.4% in the second quarter of 2018, having gradually slowed from a multi-year high of 15.9% in the second quarter of 2015.
The “Near Eastern Suburbs” sub-region, however, continues to “defy gravity” for the time being at least, it would appear, said Loos.
“Proximity close to the City Bowl, a key place of employment, is still a priority for many households as traffic congestion in Cape Town gets steadily worse. The Near Eastern Suburbs including amongst others Woodstock, Salt River and Pinelands is one of the closest to the city centre, and on top of this it the most affordable sub-region of those adjacent to the City Bowl, the strategist said.
Especially Woodstock has been known for some meaningful property upgrades and developments, which can contribute to good price growth. And after major affordability deteriorations in City Bowl and Atlantic Seaboard homes, the Near eastern Suburbs’ attractiveness for property investors may have increased significantly.
“However, while this region’s price growth has held up better than the other three sub-regions in close proximity, we believe that this is a mere lag, and that ultimately the more affordable sub-regions begin to follow the slowing price growth trend with a lag, as is beginning to happen out in the more affordable norther regions,” said Loos.
Further away from Table Mountain, in Cape Town’s more affordable suburban areas, FNB noted house price growth holding up relatively well, and even accelerating somewhat back in 2017.
“We believe that this relatively solid price growth performance had much to do with the prime regions in and around the Peninsula having become far less affordable after massive price growth in the past five years or so,” Loos said.
“It forced a portion of demand perhaps to look out north for more affordable housing opportunities as affordability nearer to the mountain deteriorated.”
However, this has resulted in a significant home affordability deterioration in the Northern Suburbs too, and more recently we have begun to see price growth slowing in all three major Northern Suburbs sub-regions, he added.
The Western Seaboard Sub-Region (including Blouberg, Milnerton and Melkbosstrand) saw a slowing in year-on-year price growth, from 14.3% in the third quarter of 2017 to 10.2% by the second quarter of 2018. “This is the most noticeable slowing in price growth off the highest base of the three northern sub-regions,” said Loos.
The “Bellville-Parow and Surroundings” sub-region also saw its price growth slow, from 11.9% year-on-year in the final quarter of 2017 to 11.2% in the 2nd quarter of 2018, after prior quarters of strengthening, FNB said.
The Durbanville-Kraaifontein-Brackenfell sub-region also started to slow slightly, from 10.1% growth in the first quarter of 2018 to 9.9% in the second quarter.