FNB’s first quarter 2018 City of Cape Town Sub-Regional House Price Indices showed the majority of sub-regions to be experiencing slowing year-on-year house price growth, with the most expensive regions’ house price growth slowing more noticeably.
But the search for relative home affordability in a now very expensive city (by South African standards) and it may be the driver of some house price growth accelerations in some of the most affordable regions of the Metro.
Overall, though, the deeds data-driven City of Cape Town House Price Index continued to show a gradually slowing price growth rate, albeit still 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 first quarter of 2018, the City of Cape Town’s estimated average house price growth rate remained strong at 10% year-on-year.
However, this year-on-year price growth rate represents the seventh consecutive quarter of slowing from a ten-year revised high of 15.6% recorded in the second quarter of 2016.
First quarter 2018 key Cape Town sub-regional house price growth rates
The majority of the FNB City of Cape Town Sub-Regional House Price Indices still show relatively strong growth. However, eight of the twelve defined sub-regions saw their year-on-year growth having slowed in the first quarter of 2018, the slowest growth rate now being recorded in the City’s most expensive region, the Atlantic Seaboard.
However, in the more affordable regions the slowing trend is less apparent than the higher priced end, with certain of these sub-regions even showing recent price growth accelerations. This, FNB believes, continues to be the result of the relative in-affordability in higher end sub-regions after recent years of strong price growth, encouraging a search for relative affordability lower down the price ladder in the more affordable sub-regions.
In and around the Cape Peninsula, the City’s most expensive markets continued to show the clearest signs of slowing price growth in the first quarter
In the first quarter of 2018, FNB saw further slowing in house price growth in the City Bowl and the other major three sub-regions closest to the City Bowl, i.e. in and around the Cape Peninsula.
These sub-regions near to the city and the mountain have shown some of the strongest house price inflation of all of the Cape Town sub-regions over the past five years, and this prior deterioration in home affordability appears to have led to slowing demand, and thus price growth, in recent quarters.
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 the most sharply off the highest base, from a revised multi-year high of 27.5% year-on-year in the final quarter of 2016 to 2.3% by the first quarter of 2018.
This does not surprise us, as this sub-region has experienced the most rapid cumulative growth of all the sub-regions over the past five years, to the tune of 111%.
The City Bowl started its price growth slowdown a little earlier than the Atlantic Seaboard, and has gone from its revised multi-year year-on-year growth high of 23.6% in the second quarter of 2016 to 10.0% by the first quarter of 2018.
The Southern Suburbs, the other one of the “most expensive three” sub-regions, saw further slowdown from 10.1% in the prior quarter to 8.4% in the first quarter of 2018, having gradually slowed from a multi-year high of 16.1% in the second quarter of 2015.
Arguably reflective of the heightened search for relative affordability in or near to Cape Town’s prime place of employment, the City Bowl, is the indication 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), shows the fastest house price growth of these “Major Four” sub-regions in or near to the Cape Peninsula.
Proximity to the City Bowl (and for that matter to Claremont Business Node) is becoming increasingly important as the city’s traffic congestion deteriorates. From a 19.4% high in the first quarter of 2016, the Near Eastern Suburbs House Price Index has also seen year-on-year growth slowing, but less significantly than the others, to reach 13.4% by the first quarter of 2018. It now has the fastest price growth rate of the Major four sub-regions surrounding Table Mountain.
The trend of slowing growth is less pronounced in the more affordable suburban markets and some sub-regions even show strengthening price growth
Further away from Table Mountain, in Cape Town’s more affordable suburban areas, the pattern of “slowdown” in price growth remains less clear, and there has even been some acceleration in certain sub-regions. FNB remains of the belief that the extremely high prices in the areas close to the City Bowl may have been encouraging a portion of aspirant buyers to shift their home search to these more “affordable” City of Cape Town housing markets a little further away, in search of greater affordability.
All three major Northern Suburbs sub-saw double-digit average house price growth rates in the first quarter of 2018, with one out of the three showing a growth acceleration.
The Western Seaboard Sub-Region (including Blouberg, Milnerton and Melkbosstrand) saw a slowing in year-on-year price growth, from 14.7% in the previous quarter to 14.4% in the first quarter of 2018, the second successive quarter of slowing growth.
The “Bellville-Parow and Surroundings” sub-region also saw its price growth slow, from 11.4% year-on-year in the final quarter of 2017 to 10.8% in the first quarter of 2018, after prior quarters of strengthening.
However, the Durbanville-Kraaifontein-Brackenfell sub-region continued to accelerate mildly, from 9.8% growth in the final quarter of 2017 to 10.1% in the first quarter of 2018.
Moving into even more affordable regions, ones which incorporate many of the city’s Apartheid Era former so-called “Coloured” and “Black” Areas, FNB have recently seen price growth accelerations.
This, too, FNB believes could reflect a mounting search for relative affordability after rapid price inflation in the higher priced “suburban” areas in recent years.
Therefore, FNB has seen the Cape Flats House Price Index experience a further growth acceleration, from 11.4% year-on-year in the previous quarter to 11.6% in the first quarter of 2018. The Elsies River-Blue Downs-Macassar Region has also seen house price growth accelerate further to reach 25% year-on-year, from 23.7% in the previous quarter.
In short, in the first quarter of 2018, the City of Cape Town has seen further mild slowing in average house price growth for the seventh consecutive quarter, although the most recent 10.0% year-on-year growth rate remains strong.
When viewing the major sub-region house price indices, however, slowdown is not across the board. It still appears that the clearest signs of slowing house price growth remain at the high end, after some years of strong affordability deterioration. But the resultant search for greater affordability is arguably the reason why the slowing trend is less clear in the more affordable housing regions (relatively speaking) further away from Table Mountain.
Questions continue to be asked as to whether the drought has taken its toll on the housing market in Cape Town? FNB believes that it must have had some impact, via its negative impact on the Western Cape economy, as well as on sentiment within and towards the region. However, FNB remains of the view that the slowing price growth was “overdue” in any event, and more due to “natural” market causes in response to prior years of significant home affordability deterioration. first time buying levels, according to the FNB Estate Agent Surveys are very low in Cape Town relative to the rest of South Africa, a reflection of this poor affordability.
FNB have also estimated that repeat home buyer “migration” to the Western Cape from the rest of South Africa has slowed in 2017, a further factor in slowing Cape Town housing demand. This slowing may be in part due to poor home affordability in Cape Town as well as due to the drought making the region temporarily less appealing.
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, and at that stage it could have a very significant impact on the region’s housing market. But that’s a major risk to the region which is not easily predictable. Much depends on the 2018 Winter rainfall season in the Western Cape.
Read more here: Property Barometer – Cape Town House Price Indices – May 2018