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Deflation hits upmarket Cape Town house prices

Overall metro sees slowest growth rate since the end of 2009.

Deflation in house prices in the Mother City – previously only really seen along the Atlantic Seaboard – has spilled over to other regions near Table Mountain. The latest Cape Town Sub-Regional House Price data from FNB shows that price growth turned negative in the City Bowl, Southern Suburbs and Eastern Suburbs (such as Salt River and Woodstock), along with the Atlantic Seaboard, in the first quarter of 2019.

The latter – which stretches from Green Point through Sea Point, Clifton and Camps Bay to Hout Bay – led the price declines in the metro, first slipping into contraction (-0.08% year on year) in the third quarter of 2018.

On average, prices in the area declined by 5.1% year on year in the first quarter, the worst performance to date. The plunge from the multi-year high growth rate of 25.5% in the first quarter of 2016 has been rapid. Factor in inflation (>4%) and the real decline in these suburbs is approaching double figures.

South Africa’s biggest property portal, Property24, shows that the number of properties on the market (as listed on the site) in Camps Bay, for example, spiked to 477 in April, from levels of just over 400 earlier this year. The picture in Sea Point is similar, with a jump from 698 listings in January to 838 in April.

FNB economist Siphamandla Mkhwanazi says prices are “softening … across virtually all sub-regions, with the upmarket sub-regions in and around the Cape Peninsula being the hardest hit”. On average, house prices contracted by 4.2% in the Eastern Suburbs, 2.4% in the Southern Suburbs, and 2% in the City Bowl. The drop in the Eastern Suburbs is especially pronounced. Only the Atlantic Seaboard and City Bowl were previously in decline.

Deflation underway in upmarket regions

Source: FNB Economics

One region to watch carefully is that of Somerset West, Strand and Gordon’s Bay, where year-on-year price growth has declined sharply – from 5.3% in the last quarter of 2018 to just 1.7% in Q1, 2019. House prices had been growing at around 10% in this region in 2017 and early 2018.

Overall, house price growth across the city “softened further to 1.2% year on year, from 3.2% in [the fourth quarter of 2018],” says Mkhwanazi, who notes that this is the slowest growth rate since the end of 2009, and the second consecutive quarter of a real house price decline (below inflation growth).

Further evidence of this slowdown can be seen in Lightstone Property’s residential property indices, whose regional data trails FNB’s, which shows price growth in Cape Town of 4.8% in January, from 8.5% in Q1 last year.

Slowest price growth for Cape Town property since 2009

Source: FNB Economics

Areas in the Northern Suburbs are holding up “relatively better” but showing a sharp deceleration in house price growth, says Mkhwanazi.

“For some time, these regions were perceived as offering more affordable housing opportunities, as affordability deteriorated rapidly nearer the mountain. Ultimately, prices overshot and completely counteracted their initial attractiveness. Unsurprisingly, as demand slowed, price growth slowed.”

Year-on-year price growth in the Western Seaboard (Blouberg, Milnerton and Melksbosstand) dropped from 3.8% in Q4 to 1.8% in Q1; Belville, Parow and surrounds from 6.1% to 4%; and Durbanville and Brackenfell from 4.2% to 2.9%.

City of Cape Town house prices

Q4 2018

Q1 2019

Atlantic Seaboard

-2.5%

-5.1%

Eastern Suburbs

0.3%

-4.2%

City Bowl

-0.2%

-2%

Southern Suburbs

0.5%

-2.4%

Southern Peninsula (Fish Hoek, Noordhoek and so on)

1.1%

1%

Somerset West/Strand/Gordon’s Bay

5.3%

1.7%

Blouberg/Milnerton/Melkbosstrand

3.8%

1.8%

Durbanville/Kraaifontein/Brackenfell

4.2%

2.9%

Belville/Parow and surrounds

6.1%

4%

Elsies River/Blue Downs/Macassar

10.1%

10.5%

Cape Flats

12.1%

11.3%

 

 

 

City of Cape Town Metro

3.2%

1.2%

What happens next?

FNB’s Mkhwanazi says looking at affordability in the city’s housing market over time is one way of figuring out whether prices will see further “downward adjustment”.

The bank uses the ratio of the average property purchase price in the city to the average household income in the province as a proxy – and says the ratio has been “rising since 2012 and reached 6.6 by 2018, the highest it has ever been in the period for which we have data [since 2000]”.

“This means the average priced house in Cape Town was roughly 6.6 times the average household income in the province,” says the bank. “Furthermore, the fact that the trend is upwards means affordability had not really improved by the end of 2018, despite slowing growth in prices since Q2 2016.”

It says based on past experience in the previous housing market cycle, “there is reason to believe that this ratio will soon normalise”.

But, says Mkhwanazi, “given the subdued economic environment, the only logical way that could happen is if Cape Town house prices adjust further down.

“Thus, it is conceivable that the house price deflation we are seeing in some upmarket regions could reverberate throughout the city, resulting in meaningful improvement in affordability. If this happens, any meaningful recovery in national prices would be undermined, which could ultimately prolong the period of subdued house price growth in South Africa.

“A nominal decline in prices is conceivable at this point,” he adds.

Hilton Tarrant works at YFM. He can still be contacted at hilton@moneyweb.co.za.

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Latest FNB estates Agents survey show’s that 18.1% of the reasons to sell a property by high nett worth individuals are emigration. Could it be that the new “cycle” will not represent the past cycle. For instance Crime is not a cycle but a spiral and only going one way. Why would the effect of EWC be positive and turn the cycle around?

https://businesstech.co.za/news/property/310420/shocking-number-of-south-africans-selling-their-homes-to-leave-the-country/

Yup, I can vouch for it. Around 40% of houses we currently see for sale is due to emigration – and this is in the leafy suburbs of Cape Town. I hate to think what’s happening elsewhere in SA.

ah well many said/did the same in 1994 out of fear of a black government and many are still here and many will still be here tomorrow. With all challenges live is still good here, it is home…

and “emigration” from Gauteng to WC slowing down…developers over supplied the market

Just waiting for an estate agent to point out that there’s never been a better time to sell.

Mr Seeff is currently drafting the letter of recommendation.

Plett Properties in the dumps – yet every month they have a new spin – shame they are just trying to generate business. I believe many agents have left the businesses.

Walked past an estate agency on Sunday evening and an agent tried to convince me that NOW was the perfect time to buy property. I agree – Spain, Portugal, Malta, Mauritius, etc

So will council revise their hopelessly overvalued valuations for rates purposes ??? I think not .

They will tell you the valuation is ‘as of June 2018’ and pre-dates the market fall.

The “council” aka DA received a massive vote of confidence by their supporters in the May election, so will they listen to you now? I think not.

They have been given a free reign to keep on screwing the ratepayers for another 5 years with all their inflated rates, levies, punitive charges etc etc…

I didn’t vote for them

You mean the provincial legislature? Which doesn’t really get money directly from ratepayers? It wasn’t a local government aka council election. So the council only have 2.5 years left, and if the people are unhappy hopefully their votes in 2.5 years show it, or else they aren’t unhappy (enough).

I’m in this market, its not deflation, its demolition. Look at the far right of the graph above titled “Deflation underway in upmarket regions”. Catastrophic because the persons who normally buy (quite often the semi-graters) are now emigrators. Its really very simple. Getting finance is not the problem, getting good stock is not the problem, the problem is “why do I put my ZAR here when Mugabe 2.0 is running the place” or even more pressing, administered price increases such as rates, levies and electricity are huge multiples of inflation.

Yes, administrative tariffs and taxes above inflation is stealth expropriation. your ownership is slowly converted into renting from government ,while your property loses value.

Valuation up 100%, rates nearly doubling, roads crumbling, drains clogged with filth, crime totally out of control in the area. I truly hope this is only cyclical otherwise homeowners are in deep trouble as this is most people’s largest asset. Value destruction on a massive scale !

You forgot to mention the traffic, with Cape Town being the most congested city in SA….2 hour commutes to work is the norm.

You forgot to mention that Cape Town has become a semi-arid region, with water shortages becoming the new normal. the over-densification due to DA policies has packed too many people into what is effectively a coastal desert. Level 3 Water Restrictions till in place and unlikely to be lifted any time soon.

You forgot to mention the impending AirBnB legislation that will hollow out a huge segment of the housing market as those investing in short term rentals will go bust very quickly being limited in how many nights the government will allow you to rent out…

You forgot to mention de Lille intending to sell off large tracts of government land for purposes of informal settlements, right next door to existing leafy suburbs (and she is now Minister with all the powers to do this)…

You forgot to mention the prospect of EWC and SA being Junked by Moody’s…

But you got the gist of what a disaster Cape Town homeowners are facing…

The ANC government and its socialist policies result in the transfer of property values from South Africa to Mauritius, Spain, Portugal, New Zeeland or Malta. Luthuli House drives the decline in real terms locally and the rise overseas. The ANC drives capital appreciation overseas and capital losses locally. They are effectively destroying their own tax base by exporting it without compensation. They are their own biggest enemy. Luthuli House in charge of the local economy is like a monkey behind the wheel of a Maserati.

“The Monkey behind the wheel of a Meserati” Good title for a new book.

North is best

..or north of Durban?

North as in Cape Town northern suburbs. You get superb value for money, lower crime, stable growth.

The southern suburbs have been in the same bubble and Australia and London for the last couple of years. That bubble may continue a bit longer, but in South Africa it isn’t sustainable with the economy as it is and the number of emigrants.

I reckon the Atlantic seaboard (Greenpoint, Seapoint, Camps Bay, etc.) and the souther suburbs (Rondebosch, Newlands, Bishopscourt and areas nearby) that have been riding the bubble from overseas money flows will be feeling the pinch for at least the next 5 years.

That said, it’s a very good time to buy in the north of Cape Town if you’re in the market for something.

@TheSpark.

Agree, suburbs like Durbanville is great. Grew up in Valmary Park (near Vygeboom Dam area) in my primary school years & had the fondest of memories).
In fact, I visited the region past April while on holiday & was delightfully impressed with new developments in the suburbs known as Pinehurst / Gaanendal / Goedemoed / Uitzicht. Back in the day it was veld / farms.

The CBD of Durbanville is so impeccably clean (bucking the trend upcountry where CBDs decay) and road markings painted, road surfaces smooth as mirrors.
The amazing thing of the Western Cape is that you do not have to go through “Passport Control” to enter the province, as it surely feels like a DIFFERENT COUNTRY.

It was only a matter of time for the Western Cape property market to join the rest of the country. I fear this correction will be more catastrophic.
Some fine homes in Cape Town, fully loaded, tastefully done. Folks are all in property down there. Never a good thing.

Finally logic takes over. I spent 5 years there and I was a senior IT developer and we could never afford property in CT. I constantly mentioned that the salaries do not match the property market as most properties, especially apartments, were gobbled up by the rich folks: accountants, lawyers and general ‘property moguls’ even in Salt River/Woodstock.

CT is no Monaco, no Sydney and is in a third-world country!

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