Residential property price growth in Cape Town’s most expensive suburbs has slowed to a barely positive 2.3% year-on-year in the first quarter of 2018, from a multi-year high of 27.5% set 18 months ago.
While not (yet?) negative, according to FNB’s Property Barometer, the average price growth for the Atlantic Seaboard decelerated noticeably from a revised 8% year-on-year in the last quarter of 2017 (in February, FNB reported growth of 10.04%). The bank uses Deeds Office data to compile a set of house price indices for key sub-regions in the metro using a “repeat sales methodology”.
The bank’s Household and Property Sector strategist John Loos, says “this does not surprise us, as this sub-region has experienced the most rapid cumulative growth of all the sub-regions over the past 5 years, to the tune of 111%.”
Over 15 years, average prices for the area stretching from Green Point, through Sea Point, Clifton and Camps Bay to Hout Bay are up 650%.
Strangely, separate data from Lightstone Property suggests that foreign interest in the province (albeit not only the city) remains robust. January saw a rebound in the percentage of foreigners buying property, at a multiyear high of 4%. Still, anecdotal evidence suggests real pain is being felt at the high end of the market.
From speaking to estate agents, it seems upper end Cape Town property has corrected by around 20 to 30%. And trading has dried up completely. Just imagine if that happened in the stock market.
— Piet Viljoen (@pietviljoen) May 11, 2018
The other two most expensive sub-regions in the metro, the City Bowl and Southern Suburbs are also cooling. Price growth in the City Bowl is now at 10% (from a revised high of 24% in 2016), while the Southern Suburbs slowed from 10.1% in the last quarter of 2017 to 8.4% in Q1 2018.
Says Loos: “When viewing the major sub-region house price indices, however, slowdown is not across the board. It still appears that the clearest signs of slowing house price growth remain at the high end, after some years of strong affordability deterioration. But the resultant search for greater affordability is arguably the reason why the slowing trend is less clear in the more affordable housing regions (relatively speaking) further away from Table Mountain.”
“Arguably reflective of the heightened search for relative affordability in or near to Cape Town’s prime place of employment, the City Bowl, is the indication 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), shows the fastest house price growth of these “major 4” sub-regions in or near to the Cape Peninsula.”
These suburbs saw average house price growth of 13.4% in Q1.
Price growth in the Northern Suburbs remains more robust, with all three (Blouberg-Melkbosstrand, Bellville and Durbanville) posting double-digit gains in the first three months of the year.
But what of the impact of the prolonged drought?
Loos says he believes “that it must have had some impact, via its negative impact on the Western Cape economy, as well as on sentiment within and towards the region. However, we remain of the view that the slowing price growth was ‘overdue’ in any event, and more due to ‘natural’ market causes in response to prior years of significant home affordability deterioration. First-time buying levels, according to the FNB Estate Agent Surveys are very low in Cape Town relative to the rest of SA, a reflection of this poor affordability”.
Separate data from Lightstone Property also suggests that the drought has not yet had a material impact.
FNB’s Loos also makes the point that the bank has “estimated that repeat home buyer ‘migration’ to the Western Cape from the rest of SA has slowed in 2017, a further factor in slowing Cape Town housing demand. This slowing may be in part due to poor home affordability in Cape Town as well as due to the drought making the region temporarily less appealing.
“Going forward, however, should the drought conditions deteriorate further, at some point it is conceivable that it may become “recessionary” for the Western Cape economy, and at that stage it could have a very significant impact on the region’s housing market. But that’s a major risk to the region which is not easily predictable. Much depends on the 2018 winter rainfall season in the Western Cape.”
Hilton Tarrant can still be contacted at firstname.lastname@example.org.