FNB’s first quarter 2018 Gauteng Metro and Major Council House Price Indices continued to mostly show low single-digit rates of growth well-below general consumer price inflation, translating into further price decline in real terms (when adjusted for consumer price inflation).
However, their first quarter FNB Estate Agent Survey showed a noticeable uptick in the Gauteng Metros’ Activity Ratings, which leads to anticipate mildly stronger house price growth in this region in 2018.
The broad Gauteng metro picture
Using Deeds Office Data, FNB constructs a set of house price indices for key sub-regions within the province of Gauteng, the aim being to evaluate this regional housing market’s performance in more detail.
They have then rolled up this set of sub-regions into overall house price indices for each major metropolitan council region as well as for each district municipal region in those areas outside of Gauteng’s three metros.
All three of Gauteng’s major metros continue to show low single-digit house price growth.
In the first quarter of 2017, the City of Tshwane had by a small margin the strongest estimated average house price growth rate to the tune of 3.34% year-on-year, followed by City of Joburg’s 3.01% and Ekurhuleni with 2.92%.
Real house price performances
With Gauteng Consumer Price Index Inflation at 4.1% year-on-year for the first quarter of 2018, these low nominal house price growth rates translate into house price declines in real terms (when adjusted for CPI), Tshwane to the tune of -0.7% year-on-year, Joburg -1.0% and Ekurhuleni -1.1%.
The three Gauteng Metros thus continued their broad decade-long correction which started around 2008.
Since the first quarter of 2008, Tshwane’s cumulative real house price decline has been -23.12%, Joburg -24.19% and Ekurhuleni -26.49%.
FNB takes a look at the City of Joburg’s main regions
Although slow growth appears almost everywhere in the City of Joburg outside of the regions to the south-west, the broader region to the north and north-west of the Johanneburg CBD appears to have been the weakest price growth part of the Metro. This region is also generally speaking where the highest income households live, and is on average the highest priced part of the Metro.
Sandton and Surrounds, as mentioned, had the slowest house price growth, negative to the tune of -0.4% year-on-year and having been on a slowing trend. The Midrand-Diepsloot Region (dominated by Midrand area trends) was slightly less weak at 1.09% growth and slowing, and the Town of Johannesburg (which includes the CBD but also certain of the high income suburbs just to the north of the CBD) on 1.36% and still slowing. Only the Town of Randburg had begun to show slight growth acceleration, from 2.6% in the previous quarter to 2.79%.
The marginally more affordable major regions of Roodepoort (west) and Johannesburg South showed only slightly better house price growth than the more northern regions, the former showing year-on-year growth of 2.85% and Johannesburg South 3.58%.
To the South West of Johannesburg lie the lowest priced regions, i.e. the “Diepkloof-Soweto-Meadowlands-Pimville” and the “Lenasia-Orange Farm-Ennerdale-Lawley” Regions. These regions have shown accelerating growth in their indices of late, and have the two strongest year-on-year growth rates as at the first quarter of 2018, the former region showing 12.37% year-on-year growth and the latter region 5.11%. While FNB cautions about factors that can consistently lead to over-estimates of price growth in these low income regions, the strongly accelerating growth direction of especially the Diepkloof-Soweto-Meadowlands-Pimville Region leads them to believe that the low income end of the Joburg housing market is indeed the stronger segment.
Caution must be exercised when it comes to Repeat Sales House Price Indices using deeds data for low income regions such as the Diepkloof-Soweto-Meadowlands-Pimville Region of Joburg with its very strong 52.8% cumulative growth over five years. This is because social housing is often initially registered at values not related to market value, artificially inflating a repeat sales house price index in such low income regions more than the market reality.
In short, FNB perceives a vaguely stronger market in the low income segments of the City of Joburg compared to the higher value regions, especially those to the North of the CBD. It definitely isn’t a strong and clear pattern, however.
The highest priced sub-region, i.e. “Sandton and Surrounds”, remained the weakest house price growth region in the City of Joburg, declining by -0.04% year-on-year in the first quarter of 2018, and indeed has been the weakest performer over the past five years, with only 15.93% cumulative price growth over that time.
This is very different to the highest priced regions of Cape Town, i.e. the Atlantic Seaboard and the City Bowl, on the other side of the country, two regions that have performed extremely strongly. The Atlantic Seaboard has inflated by over 100% in the past five years. The performance differential between the highest value regions of Joburg and those of Cape Town is reflective of major divergences in sentiment towards and within the two regions, and the strong outward migration of affluent households in the direction of Cape Town over the past ten years may have much to do with an under performing well-supplied Sandton region on the one hand, and until recently an under-supplied outperforming Cape Town high end.
In the first quarter of 2018, only the City of Joburg House Price Index had shown a very slight acceleration in its year-on-year growth rate on the previous quarters, from 2.92% in the third quarter of 2017 to 3.01%, while the other two metro regions, Tshwane and Ekurhuleni, still showed slowing growth in recent quarters.
The Tshwane house price index has been the “out performer” of the three metros by a small margin in recent quarters.
However, FNB does expect a near term acceleration in house price growth in all three of these regions. The decade-long real price decline has gradually been improving home affordability in Gauteng, and first time buyer levels are solid as a result.
And in the first quarter, on the back of improved sentiment, agents surveyed in the FNB Estate Agent Survey reported significant increases in residential activity levels in their areas, increases to levels above the national average. This is usually a signal of a stronger and better balanced market on its way, both in Tshwane and the Greater Johannesburg region (including City of Joburg and Ekurhuleni).
Read more here: Property Barometer – Gauteng House Price Indices – June 2018