Examining the FNB House Price Indices for the country’s major regions, slowing price growth in the country’s recent star performing region, the Western Cape, has begun to emerge. The 4th quarter 2016 year-on-year average house price growth of 8% for the Western Cape remains a strong one, and still far above the other major regions, but has slowed for 3 consecutive quarters from a 10-year high of 10.6% reached in the 1st quarter of 2016.
It is likely that, after a recent period of very strong house price growth in the Western Cape, a mounting affordability challenge in the region, especially for aspirant first time buyers, has started to put some brakes on demand growth. Since the beginning of 2010 (the start of the post-2008/9 recession recovery), the average house price for the Western Cape has risen cumulatively by 76.6%. By comparison, the next strongest growth was in KZN, with a far more moderate 45.3% and Gauteng with 41.3% over the same period.
The Western Cape has benefited from a period of strong confidence in the region’s long term economic prospects, and has attracted a very strong net inward migration of repeat home buyers from other provinces on recent years.
However, ultimately affordability has to play a role, and perhaps this is becoming evident when we examine FNB’s Estate Agent Survey results to observe a low level of 1st time buying in the region.
Using the average for the final 2 quarterly surveys of 2016, estate agents in the City of Cape Town estimate first time buyers to make up a mere 10% of total home buyers. By comparison, all other major metro regions have higher percentages, with Tshwane and Greater Joburg Metro Regions registering a far higher 22% and 28% respectively. The Western Cape is the most expensive major region by far, with an average estimated house price of R1.411 million, the next most expensive region being Gauteng with an average price of R1.042 million.
At the other end of the average house price growth scale, the Eastern Cape is the weakest with year-on-year decline of -2.9% as at the 4th quarter of 2016, while KZN and Gauteng registered low positive growth of 1% and 1.2% respectively. The FNB House Price Index for the 5 Smaller Provinces, too, showed only 1.2% year-on-year growth in the 4th quarter of 2016.
Examining the FNB Major Metro House Price Indices, FNB see the slowest ones in the 4th quarter of 2016 to have been Ethekwini, with a -2.9% year-on-year decline, and Nelson Mandela Bay with a -0.5% decline. At the top end of the growth scale, City of Cape Town rose by 8.1% year-on-year.
In the absence of high frequency economic data by region, it is difficult to isolate the key drivers of relative weakness in the Eastern Cape and KZN. However, FNB suspects that in those 2 provinces’ rural regions the drought may have played a key role, while in their major metros it is possible that a very weak period for the Manufacturing Sector in recent years (key drivers of the Ethekwini and Nelson Mandela Bay economies) may have impacted more significantly on these regions than in the case of the stronger Services-driven economies of Gauteng and especially the Western Cape.
Also pointing to Ethekwini and Nelson Mandela Bay Metros having the weaker markets of the major regions was the FNB Estate Agent Survey’s estimated average time of homes on the market prior to sale.
For the final 2 quarters of 2016, the estimated time on the market in Nelson Mandela Bay was the longest of the major metro regions, to the tune of 18.93 weeks, followed by Ethekwini Metro’s 15.29 weeks.
Interestingly, of late has been Tshwane Metro, which although not having significant house price growth appears to have a vibrant market with the lowest average time of homes on the market to the tune of 10 weeks. This average beats Cape Town’s estimated 14.36 weeks, and that 14.36 weeks of Cape Town has just recently lengthened considerably from 10.71 weeks average for the 1st half of 2016.
In short, while the Western Cape was the clear “outlier” in 2016, with far stronger house price growth than the rest of the country’s major regions, there have recently been clear signs that this market has been slowing. At the other end of the scale, it appears that the Eastern Cape and KZN are the weaker of the major provinces, which may have to do with a combination of a high dependency on a weak Manufacturing Sector as well as drought conditions. Somewhere in the middle, Gauteng ticks along slowly, with the City of Tshwane appearing to be its stronger sub-region.