FNB second quarter 2017 City of Cape Town Sub-Regional House Price Indices still show some of the most expensive regions to be the strongest. But as home affordability deteriorates, some of the more affordable regions may be seen as coming to the fore price growth-wise.
Overall, though, FNB’s deeds data-driven City Of Cape Town House Price Index continued to show a gradually slowing price growth rate, albeit still very strong.
The overall city picture
Using Deeds Office Data, FNB compiles a set of house price indices for key sub-regions within the City of Cape Town Metro using a repeat sales methodology.
FNB has then rolled up this set of sub-regions into an overall City of Cape Town Metro House Price Index. In the second quarter of 2017, the City of Cape Town’s estimated average house price growth rate remained in double-digit territory to the tune of 13.8% year-on-year.
However, while still very strong, this year-on-year price growth rate represents the fifth consecutive quarter of slowing from a 10-year high of 15.7% revised rate recorded in the first quarter of 2016.
The two most expensive sub-regions remain the strongest for now, but will some of the more affordable regions begin to gain appeal?
Second quarter 2017 key Cape Town sub-regional house price growth rates
The FNB City of Cape Town Sub-Regional House Price Indices still show widespread strength across much of the metro. However, seven of the twelve defined sub-regions saw their year-on-year growth having slowed in the second quarter of 2017.
Interestingly, too, is that certain of the major “affordable” regions have shown recent house price growth accelerations, perhaps highlighting the City’s residential affordability challenges (and resultant search for more affordable homes) after a strong price inflation run in recent years. The FNB Estate Agent Survey continues to point to first time buyers in Cape Town battling to buy homes far more than in other major cities of the country.
In and around the Cape Peninsula, the markets are still very strong but three of the four sub-regions in question saw slight slowing in price growth in the second quarter
On the land-scarce Cape Peninsula, the two most expensive sub-regions in the City of Cape Town Metro, i.e. the Atlantic Seaboard and the City Bowl, continued to be the “hottest markets in the Metro despite some mild price growth slowing”.
The Atlantic Seaboard average house price inflation rate moderated only very slightly, from a multi-year high of 30.1% year-on-year in the first quarter of 2017 to 29.9% in the second quarter. The City Bowl has seen slightly more slowing, from its 22.7% year-on-year high in the second quarter of 2016 to 21.1% in the second quarter of this year, but it too remained “red hot”.
Slower, but still strong, are the Southern Suburbs with 14.7% year-on-year growth, and the “Near Eastern Suburbs” (including amongst others Salt River, Woodstock and Pinelands) with 13.5%. The latter region has seen a noticeable price growth slowing from a high of 18.4% year-on-year in the third quarter of 2016.
FNB would expect a near term slowing in price growth in the City Bowl and Atlantic Seaboard, after major affordability deteriorations, and with some signs of foreign buyer interest in South Africa weakening mildly. But housing markets can gain a momentum of their own, with investors/buyers acquiring their enthusiasm for an area/region merely due to the recent rampant price growth in that region, something we could term “recency bias” or perhaps “momentum bias”.
Land shortages in these areas can play a key role, but can only go so far in boosting price levels before demand dwindles. For the time being though, the Atlantic Seaboard and City Bowl remain the 2 hottest markets in the City of Cape Town and possibly even in the entire South Africa.
Does the Western Seaboard benefit from its location and relative affordability as a portion of middle-to-higher income demand looks for greater ‘affordability’?
A key question is where does housing demand go next as the affordability of the regions on or near to the Cape Peninsula deteriorates. The Northern regions of the City of Cape Town have generally been more affordable, but they have their own challenges in terms of being further removed from the key employment nodes in the Southern Suburbs and City Bowl, and with increasing congestion making commuting ever more challenging.
The northern region which is potentially an appealing alternative is the Western Seaboard. It is the nearest of FNB’s three major northern regions to the City Bowl, Claremont and other business nodes, is relatively affordable for higher income households compared to the Peninsula regions, but also has an appealing lifestyle, being located on the Atlantic coastline.
And recently, FNB asks the question as to whether they have just started to see the Western Seaboard region outperform others in the northern areas as a result of its “competitive locational advantage” highlighted above? The Western Seaboard (Blouberg-Milnerton-Melkbos) average house price growth rate was estimated to have accelerated to 14% year-on-year in the second quarter of 2017, up from 13.4% in the final quarter of 2016.
By comparison, the further removed Durbanville-Kraaifontein-Brackenfell region has slowed to growth of 6.8% (from 14% in early-2016), while the Bellville-Parow and Surroundings region has slowed to 8.3% growth (from 12.6% in late-2015).
Certain more affordable regions can lag the cycle and have shown accelerations of late
In a relative boom period, one can often see the higher-priced sub-regions leading the cycle, but as their affordability becomes a mounting challenge the search for relative affordability can turn a portion of housing demand in the direction of more affordable sub-regions.
This can cause the more affordable regions to lag the cycle, with their house price growth accelerating at a slightly later stage.
It is possible that this is what we have begun to see in Cape Town’s major “affordable” regions, i.e. the Cape Flats and the Elsies River-Blue Downs-Macassar Regions. The former region’s year-on-year house price growth has accelerated for 5 consecutive quarters from 10.4% in the first quarter of 2016 to 12.5% by the second quarter of 2017. The latter has reached 13.7% average price growth by the 2nd quarter of 2017, having accelerated for seven consecutive quarters from 5.4% in the third quarter of 2015.
First time buying and affordability in Cape Town, deteriorates further
The evidence of mounting Cape Town affordability challenges continues to come from the FNB Estate Agent Survey which, for the first two quarters of 2017 showed a very low estimate of first time buyer levels in the City of Cape Town.
Whereas the National Average estimate is that first time home buyers amounted to 21% of total home buyers in the first half of 2017, Cape Town’s estimate was a far lower 6.64%, having deteriorated steadily from an average of 18.4% in 2015.
FNB believes that this extremely low estimate is reflective of a significant affordability deterioration in recent years in the City of Cape Town Metro.
This affordability challenge could conceivably contribute to some strengthening in more affordable sub-regions with the metro.
Atlantic Seaboard and City Bowl aside, the pattern of ‘strongest price growth in and around the peninsula’ has become less clear
Stacking up all of the regions next to each other, the Atlantic Seaboard region remained the one with the strongest house price growth in the second quarter of 2017 at 29.9% year-on-year. This was followed by the 21.1% of the City Bowl. These two regions were the clear top performers in the second quarter. However, whereas in previous reports we saw the other three of the “top five” being in or around the Cape Peninsula, the pattern has become less clear. The Southern Suburbs region did take third spot by a very small margin with 14,7% year-on-year price growth. But coming into the top performer mix was the Western Seaboard (Blouberg-Milnerton-Melkbos) region in fourth spot with 14% price growth. Thereafter, the far more affordable region of Elsies River-Delft-Blue Downs was in fifth spot with 13.7% year-on-year average price growth.
Although the City of Cape Town has seen some mild slowing in average house price growth over the past five quarters, at 13.8% year-on-year this market remains very strong.
Slowing growth in the second quarter of 2017 has taken place in seven of the twelve regions of the City.
In the second quarter of 2017, the top five growth regions are no longer all those on or nearest to the Cape Peninsula. The two top performers, i.e. the Atlantic Seaboard and the City Bowl are on the Peninsula. But certain more affordable regions a little removed have started to move into the top five performers in terms of price growth, notably the Western Seaboard, a relatively affordable region for middle to higher income households looking for the next best thing from a lifestyle and commuter location.
In addition, FNB has seen recent accelerations in the “affordable regions” of the Cape Flats as well as the Elsies River-Blue-Downs-Macassar sub-region. Such affordable regions can lag the overall cycle.