Research

Property Barometer – City of Cape Town House Price Indices

FNB’s third quarter 2017 City of Cape Town Sub-Regional House Price Indices still show some of the most expensive regions to be strong. But as home affordability deteriorates, FNB have seen noticeable house price growth slowing in the high priced sub-regions, while simultaneously witnessing some price growth accelerations in more affordable suburban regions.

Overall, though, the 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.

They have then rolled up this set of sub-regions into an overall City of Cape Town Metro House Price Index. In the third quarter of 2017, the City of Cape Town’s estimated average house price growth rate remained in double-digit territory to the tune of 11.4% 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 second quarter of 2016.

The highest priced sub-regions have experienced slowing house price growth recently

Third 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, six of the twelve defined sub-regions saw their year-on-year growth having slowed in the third quarter of 2017, and three of these were the three most expensive sub-regions.

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.

Still strong, but in and around the Cape Peninsula, the markets have shown further signs of slowing price growth in the third quarter.

While still all showing solid year-on-year house price growth rates as at the third quarter of 2017, FNB saw more noticeable signs of house price growth slowing down in the City Bowl and two of the three sub-regions closest to the City Bowl.

These sub-regions near to the city and the mountain have run very hard in recent years, and FNB suspects that resultant mounting home affordability challenges here are contributing to a “natural” price growth slow down.

The recently ”hot”, as well as most expensive sub-region, in the City of Cape Town Metro, i.e. the Atlantic Seaboard, has seen its average house price growth slow from a multi-year high of 26.5% year-on-year in the first quarter of 2017 to 19.9% by the third quarter.

The City Bowl started its price growth slowdown a little earlier, and has gone from its multi-year year-on-year growth high of 22.9% in the second quarter of 2016 to 15.1% by the third quarter of 2017.

The Southern Suburbs showed the slowest average house price growth of the four major Cape Peninsula sub-regions, to the tune of 11.7% year-on-year, down from a multi-year high of 16.3% reached in the second quarter of 2015.

The most affordable sub-region within close proximity to the City Bowl, this proximity being important given Cape Town’s mounting traffic congestions problems, is the Near Eastern Suburbs sub-region (including amongst others Salt River, Woodstock and Pinelands and with an average transaction price estimated at R1.848m).

This sub-region’s greater affordability than the aforementioned three sub-regions may be starting to come to its housing market’s support relatively-speaking. While it has also seen its house price growth slow, since its multi-year high of 18.6% back in the second quarter of 2016, to 17.1% year-on-year in the third quarter of 2017, this slowdown in price growth has been minimal, and far less than the other three regions in and near to the City Bowl. The most recent 17.1% price growth rate represents a slight increase from the 16.9% of the prior quarter, and it now exceeds the house price growth rate not only of the Southern Suburbs region but also that of the City Bowl.

FNB has expected a slowing in price growth in the City Bowl and adjacent sub-regions for some time, after major affordability deteriorations, and it appears that this has started to happen.

Do more affordable suburban markets benefit as a portion of middle-to-higher income demand looks for greater ‘affordability’?

The high price price inflation of the areas close to the City Bowl in recent years, and resultant affordability deteriorations, may have started to boost the more “affordable” City of Cape Town housing markets a little further away, as a portion of housing demand shifts in search of greater affordability.

All three major Northern Suburbs sub-regions have recently seen their average house price growth rates start to resume some acceleration.

From a 13.6% year-on-year house price growth rate in the final quarter of 2016, the “Western Seaboard” sub-region (including Blouberg, Milnerton and Melkbosstrand) saw its price growth rate accelerate to 17.2% by the third quarter of 2017. The “Bellville-Parow and Surroundings” sub-region saw its price growth accelerate from 9.7% year-on-year in the final quarter of 2016 to 12.1% in the third quarter of 2017, while more recently the Durbanville-Kraaifontein-Brackenfell sub-region went from 8.8% growth in the second quarter of 2017 to 9.1% in the third quarter.

Certain more affordable regions can lag the cycle, and have shown accelerations of late

In a relatively strong property 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 has become evident 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 not accelerated recently, but appears to have “held solid”, with its third quarter 2017 year-on-year growth at 10.8%. However, the latter region has seen a noticeable price growth acceleration from a low of 5% year-on-year in the third quarter of 2015 to 17.5% exactly two years later.

Conclusion 

Although the City of Cape Town has seen some mild slowing in average house price growth over the past five  quarters, at 11.4% year-on-year this market remains very strong.

Slowing house price growth in the third quarter of 2017 has taken place in six of twelve regions of the City.

The City of Cape Town’s housing market has been a lot stronger than other South Africa major regions in recent years, and FNB believes that mounting home affordability challenges have recently been starting to take their toll on, especially, the most expensive sub-regions in and near to the City Bowl. These markets within close proximity to the City Bowl have been sought after in recent years as the broader city commuter population increasingly battles traffic congestion to and from the City Bowl. These sub-regions have also been highly sought after by foreign buyers, investors, and a significant number of affluent up-country migrants moving to the popular Western Cape region.

Ultimately, though, affordability would become a challenge in these sub-regions, and that appears to be what is happening. The more affordable regions, for instance the Northern Suburban sub-regions, may have benefited from mounting affordability challenges on the Cape Peninsula, and they have actually seen recent house price growth accelerations.

But these price growth accelerations in certain more affordable sub-regions have not been sufficient to halt an overall house price growth slowdown in the City of Cape Town as a whole. Affordability challenges aside, it is also conceivable that the region’s economic growth has come under pressure recently, not only from a stagnant broader national economy, but possibly due to severe drought conditions in the Western Cape. And weaker economic growth may be starting to take its toll on Household Sector income and purchasing power growth.

Read more here: Property Barometer – Cape Town House Price Indices – November 2017