2nd Quarter 2018 House Price Growth in Cape Town Residential Market

House price growth on Cape Town’s Atlantic Seaboard has decelerated further, with prices up just 1.94% year-on-year in the second quarter. This is less than half the revised first quarter figure of 4.43%, according to FNB’s House Price Index, and a sharp drop from the multi-year high of 27.7% year-on-year in Q4 2016, just 18 months ago.

Include the impact of inflation, at an average of 4.5% in Q2, and prices in the area, which stretches from Green Point through Sea Point and Clifton to Hout Bay, are in decline. Use the consumer price inflation number for the Western Cape in particular, which runs at nearly one percentage point ahead of the national figure (5.4% in June, versus the overall Stats SA figure of 4.6%), and the picture looks even more worrying.

Nine out of 12 sub-regions tracked by John Loos in FNB’s City of Cape Town House Price Indices saw slowing price growth in the quarter. Of the four key regions – the Atlantic Seaboard, City Bowl, Southern Suburbs and Near Eastern Suburbs – only one saw house price growth accelerate in the quarter. What FNB terms “Near Eastern Suburbs”, which includes Woodstock, Salt River and Pinelands, saw prices up 17.57% year-on-year in the quarter.

Loos says these suburbs are the “most affordable … of those adjacent to the City Bowl”, and with traffic congestion in the metro getting progressively worse, its proximity to the city makes it attractive.

Woodstock, especially, has seen a large number of new residential property developments in recent years, and Loos says these “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, he says that “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 [will] begin to follow the slowing price growth trend with a lag, as is beginning to happen out in the more affordable norther regions”.

The trend of demand shifting outward to those northern regions, such as Durbanville, Bellville and Blouberg, has slowed too as home affordability has deteriorated “significantly” in these areas. This slowing started in the first quarter and continued into the second, with growth in one of the three (broader Durbanville) moving into single-digits.

“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.”

Overall house price growth for the entire City of Cape Town metro is at 8.69% year-on-year in the quarter, from 9.66% in Q1.

Loos says that the “recent drought may have had some cooling impact on the Cape Town housing market, via its negative impact on the Western Cape economy, as well as on sentiment within and towards the region. However, despite the good recent rains, which will alleviate the region’s water shortage somewhat, we do not believe this house price growth slowdown will reverse in the near term.

“This is because we remain of the view that the recent slowing price growth has been driven largely by some years of significant housing affordability deterioration, and that slower house price growth for a considerable period is due, until such time that affordability has meaningfully improved.

“Therefore, while severe drought conditions may be in the process of being alleviated in the Western Cape, which can be a positive for that region’s economy, we remain of the opinion that Cape Town’s house price growth will continue to slow in the near term, and move into a lengthy ‘benign’ period in line with the broader South African housing market, while incomes in the region gradually catch up with prices.”