After examining the FNB House Price Indices for South Africa’s major regions, the Western Cape’s slowing price growth continued in 2017’s fourth quarter.
The Western Cape’s year-on-year house price growth measured at 4.4% in the fourth quarter, slower than the 4.8% revised rate of the previous quarter and now, significantly slower than the 11.1% multi-year high recorded in the first quarter of 2016.
The Western Cape House Price Index growth rate finds itself moving in the opposite direction to the other three of the ‘Big Four’ provinces.
The other three major provinces showed some growth and acceleration in 2017’s fourth quarter, the Eastern Cape from a lowly 1% year-on-year in the prior quarter to 1.5%, Gauteng from 2% to 2.4% and KZN from 6% to 7.9%. The Western Cape’s slowing, compared to the other major regions is not a surprise; it has significantly out-performed the rest of the country over the past five or six years and in the process, it has seen its affordability deteriorate rapidly. In addition, FNB suspects that the severe drought in the Western Cape may be starting to impact on the more agriculture-driven parts of the province outside of the Cape Town Metro.
FNB believes that the slowing in the Western Cape’s average house price growth is largely outside of the City of Cape Town Metro because the fourth quarter 2017 FNB Cape Town Metro House Price Index was still soaring at a relatively strong 9.4% year-on-year, which is slightly faster than the previous quarter’s 9%.
On the other hand, the KZN House Price Index’s recent growth out performance is possibly tougher to explain than the slowing in the Western Cape. The economy’s prospects started to improve in late 2017, with certain Leading Business Cycle Indicators having risen and interest rates lowering slightly last July. Link this to the fact that South Africa has seen very slow growth in house prices in the recent past years, in all of the four major provinces bar the Western Cape, translating into some affordability improvements in terms of average house price relative to household incomes, and some recent house price acceleration in these three provinces is not too surprising.
KZN’s recent house price growth out performance (over Gauteng) is surprising. FNB says this because their Estate Agent Surveys for all of the major metros point to a greater supply-demand imbalance in the all-important Ethekwini Metro in KZN (and Ethekwini’s recent house price growth acceleration has been a contributor to KZN Province’s overall house price growth acceleration), with the fourth quarter estimated average time of homes on the market in that metro being a still-lengthy twenty weeks and six days, compared to Greater Joburg’s shorter seventeen weeks and one day, and Tshwane Metro’s thirteen weeks and two days. During 2017, Gauteng’s Major Metro regions also saw strong rates of 1st time buying compared to all 3 Major Coastal Metros, suggesting that they have less of an affordability challenge than down at the coast. Therefore, despite a recent superior price growth performance in KZN, we believe that price realism and affordability in Gauteng are better than the other major regions, and that Gauteng is all round the healthiest and most well-balanced housing market. The “superior” price growth performance in KZN may thus not be sustainable for too long.
The FNB House Price Index for the five Smaller Provinces (Mpumalanga, Limpopo, North West, Northern Cape and Free State) showed further negative growth in the 4th quarter of 2017, from -0.4% year-on-year in the prior quarter to -0.9%. In recent years. Mining regions’ economies in the smaller provinces have been under pressure since around 2011, while more recently many of the strong Agriculture regions’ economies have been under pressure from drought conditions. Their housing markets’ under performance is thus perhaps not altogether surprising in such challenging economic conditions.
Cumulatively, over the past 5 years, from the 4th quarter of 2012 to the 4th quarter of 2017, the Western Cape’s house price growth has far outpaced the other major regions, rising by 50.4%, with KZN being a distant second recording 31.9%, Eastern Cape 25.6%, Gauteng 21.9% and the 5 Smaller Provinces 17.1%.