Cape Town’s most expensive regions’ house price growth continues to slow noticeably, according to FNB’s Fourth Quarter 2017 City of Cape Town Sub-Regional House Price Indices. Some of the City’s more affordable housing regions appear to have been performing quite well, which has been encouraged by a greater search for affordability.
Albeit still strong, FNB’s deeds data-driven City of Cape Town House Price Index continued to show a gradually slowing price growth rate, overall.
The overall city picture
FNB compiles a set of house price indices using Deeds Office Data. These indices are 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 fourth quarter of 2017, the City of Cape Town’s estimated average house price growth rate remained within double-digit territory to the tune of 10.8% year-on-year.
Whilst still very strong, the year-on-year price growth rate represents the sixth consecutive quarter of slowing from a ten-year high of 15.7% recorded in the second quarter of 2016.
The highest priced sub-regions continue to slowly lead the way
Fourth 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 FNB’s twelve defined sub-regions saw their year-on-year growth having slowed in the fourth quarter of 2017, and three of these were the three most expensive sub-regions.
In the more affordable regions, there still appears to be some ‘resilience’, with quite a few of these sub-regions showing recent price growth accelerations. This is not a surprise, given that the huge price growth of recent years (in higher end sub-regions) must surely have encouraged a more recent shift in some demand towards those most affordable sub-regions. The fact that many sub-regions still see double-digit house price growth, points to still very strong purchasing power in the City of Cape Town.
In and around the Cape Peninsula, the City’s three most expensive markets continued their slowing price growth in the fourth quarter
In the fourth quarter of 2017, FNB saw a more noticeable sign 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 inflated very strongly in recent years and FNB suspects that resultant mounting home affordability challenges here, are contributing to a ‘natural’ price growth slow down.
Whilst many people ask FNB questions as to whether the severe Western Cape drought has had a noticeable impact on house prices, FNB does not believe so yet. Their opinion is that of the mounting affordability challenge (from massive house price growth) of recent years, has begun to ‘naturally’ lead to slowing house price growth in these high end markets.
The 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 27.2% year-on-year in the final quarter of 2016 to 10% by the third quarter. It is possible that a slowing in the rate of foreigner buying of South African property last year, due (FNB believes) to a widespread negative sentiment towards the country at the time, could have had some negative impact on price growth in this sub region which is typically big on foreign owners and buyers. Yet, FNB believes that 122.8% cumulative house price growth of the past five years, has been key in leading to major affordability challenges, which ultimately slows demand in both foreigner and local demand alike.
The City Bowl started its price growth slowdown a little earlier than the Atlantic Seaboard, and has gone from its multi-year year-on-year growth high of 23.5% in the second quarter of 2016 to 12.0% by the fourth quarter of 2017.
The Southern Suburbs, the other one of the “most expensive three” sub-regions, saw further slowdown from 12% in the prior quarter to 11.2% in the fourth quarter of 2017, having gradually tapered from a multi-year high of 16.3% in the second quarter of 2015.
Interesting, is that the most affordable sub-region within close proximity to the City Bowl, i.e. the Near Eastern Suburbs sub-region (including amongst others Salt River, Woodstock and Pinelands), may be benefiting from the deterioration in affordability within the City Bowl region in recent years. Proximity to the City Bowl (and for that matter to Claremont Business Node) is becoming increasingly important as the city’s traffic congestion deteriorates, and FNB has yet to see noticeable slowdown in price growth in this sub-region. From a 16.8% ‘low in the second quarter of 2017‘, the Near Eastern Suburbs House Price Index showed renewed growth acceleration to 17.5% by the final quarter of last year, now showing the fastest price growth of any of the regions close to the mountain.
More affordable suburban markets may be benefiting after major house price inflation at Cape Town’s high end
FNB has mentioned before that further away from Table Mountain, in Cape Town’s more affordable suburban areas, the pattern of ‘slowdown’ in price growth is less clear and in fact, there has been some acceleration in many sub-regions. The now very high prices in the areas close to the City Bowl may have been causing a portion of aspirant buyers to shift their focus to these more ‘affordable’ City of Cape Town housing markets a little further away, in search of greater affordability.
All three major Norther Suburbs sub-regions thus saw some renewed acceleration in their average house price growth rates in 2017.
Admittedly, in the final quarter of 2017 the Western Seaboard Sub-Region (including Blouberg, Milnerton and Melkbosstrand) saw a slowing in year-on-year price growth after a prior three quarters of acceleration, but still stood solid at 13.9%.
The “Bellville-Parow and Surroundings” sub-region saw its price growth accelerate further, from 9.5% year-on-year in the final quarter of 2016 to 13.3% in the fourth quarter of 2017, while more recently the Durbanville-Kraaifontein-Brackenfell sub-region went from 8.9% growth in the second quarter of 2018 to 10% in the fourth quarter.
Moving into even more affordable regions, ones which incorporate many of the city’s Apartheid Era former so-called “Coloured” and “Black” Areas, FNB has recently seen similar price growth accelerations.
This too, FNB believes, could reflect a mounting search for relative affordability as higher priced “suburban” areas prices rise.
Therefore, FNB has seen the Cape Flats House Price Index see a growth acceleration from 10.16% year-on-year as at the third quarter of 2016 to 12.6% by the final quarter of 2017, while the Elsies River-Blue Downs-Macassar Region has accelerated more significantly, from 5% as at the third quarter of 2015 to 20.8% by the final quarter of 2017.
In short, overall the City of Cape Town has seen some mild slowing in average house price growth over the past six quarters, although the most recent 10.8% year-on-year growth rate remains strong.
When viewing the major sub-region house price indices, however, slowdown is far from across the board. Rather, it would appear that the most noticeable slowing in house price growth is at the high end, after some years of strong affordability deterioration. But the resultant search elsewhere for greater affordability has perhaps been key in sustaining solid demand lower down the house price ladder, and we have indeed seen price growth accelerations in 2017 in many of these more affordable housing regions (relatively speaking) further away from Table Mountain.
Has the drought taken its toll on the housing market in Cape Town in a significant way? FNB is not yet convinced. FNB believes that the price growth slowing is more due to “market natural” causes in response to prior years of significant home affordability deterioration. Going forward, however, should the drought conditions deteriorate further, at some point it is conceivable that they may become “recessionary” for the Western Cape economy, should it reach a level where much industrial production needs to be scaled back and a lack of water hampers tourism and other economic sectors. A negative economic and employment impact should ultimately be a negative housing market impact. But, FNB does not believe that it has got to this level yet, and much will depend on this winter’s rainfall.