StatsSA’s recent residential building statistics release for September pointed to a national year-on-year decline in new planning activity during Q3 2022, after a prior period of positive growth.
But on a provincial basis, FNB Commercial Property Finance has seen some wide divergences, most notably in the Western Cape which outperformed Gauteng and KwaZulu-Natal and it appears that the Western Cape is on track to have the largest share of residential building activity of all nine provinces for the first time in recorded history. This is significant because Gauteng is the largest provincial economy with the largest population.
Using a three-month average due to data volatility (the three months to September 2022), FNB points out the national growth rate in residential unit building plans passed in SA was negative to the tune of -21.88% year-on-year.
When delving into the provincial breakdowns, all three major provinces (the Western Cape, Gauteng, and KwaZulu-Natal) have exhibited signs of growth slowdown, but the growth divergences remain large; Gauteng showed a -7.9% year-on-year decline for the three months while KwaZulu-Natal declined by -11.8%.
It is a different story for the Western Cape – from a year-on-year growth rate of 66.7% for the three months to August 2022, growth in the province’s plans passed has slowed to 36% for the three months to September 2022.
For the first nine months of 2022, the Western Cape’s number of units of residential building plans passed have accounted for 37.8% of the national total, above Gauteng’s 28.5% share with the third largest market, KwaZulu-Natal, coming in at 13.2%.
The picture was similar for residential buildings completed with the Western Cape grabbing 43.8% of the national share in terms of number of units, Gauteng 33.3%, and KwaZulu-Natal 9.6%, despite the Western Cape being a smaller-sized economy and housing market than Gauteng.
Gauteng has a GDP (Gross Domestic Product) that accounts for 34% of national GDP (IHS-Markit estimates), followed by KwaZulu-Natal’s 15.5%, with the Western Cape being the third largest economy on 13.7% of national GDP. The population of Gauteng is 14.1 million, KwaZulu-Natal 11.6 million, and the Western Cape 6.9 million.
But on a per capita income basis, it now runs only marginally behind Gauteng, the highest per capita income province with Gauteng measuring an estimated R101 811 per capita income in 2021, the Western Cape R99 204, while KwaZulu-Natal was estimated at far lower R58 477.
But for the past twenty years, the Western Cape’s 2.6% average real GDP growth per annum has matched that of Gauteng (IHS Markit estimates), and those two provinces’ growth rates have outperformed all of the others over that time.
The Western Cape has been building a brand as a well-run region, and one with a great lifestyle, resulting in an ability to better attract and retain skilled labour than any other province. This may have set the stage for it to even start outperforming Gauteng in terms of economic growth, and an outperforming property market too.
Understanding semigration flows
A myth exists that the Western Cape is the country’s biggest semigration destination. According to John Loos, Property Sector Strategist at FNB Commercial Property Finance, this is not true – Gauteng is the biggest due to its massive economy and population, both of which dwarf the Western Cape.
But FNB’s research over the years has pointed to the Western Cape having a stronger ‘net inflow’ of middle to higher income semigrants than any other province.
In Gauteng’s case, the gross inflow is likely far bigger than that of the Western Cape, but its outflow is bigger than its inflow, causing a net outflow of semigrants.
It was believed that the Western Cape’s strong net inflow of skilled and often more affluent semigrants over the past two decades or so would ultimately lead to its economic growth rate outperforming the rest of the provinces, including Gauteng.
This is not merely because semigrants arrive with money to spend and needing new homes, but because they add to the province’s skilled labour supply, and skilled labour is a key driver of a modern services dominated economy.
FNB believes that the province’s relatively strong performance in new home building planning and activity is reflective of its economy outperforming in terms of growth (not size), creating new jobs at a faster pace, and fueling stronger demand growth for housing (not a larger overall housing market size.
Does the Western Cape’s building activity represent economic outperformance?
It is likely more about economic growth outperformance and not merely about current semigration rates, because it isn’t just the Western Cape’s residential building planning that appears to be catching up with Gauteng’s levels.
Using three-year moving averages, FNB sees that retail property building plans passed in the Western Cape for the past three years (2020- 2022 to date) are slightly higher than that of Gauteng, at 20.9% versus Gauteng’s 20.7%.
While these levels are almost the same, for a far smaller economy’s retail building plans to match those of Gauteng is significant.
Back in the late-1990s, Gauteng accounted for nearly 40% of the national total, while the Western Cape was less than half of that.
For the three years to 2022, the Western Cape’s square metreage of office plans passed also exceeded those recorded in Gauteng, the Western Cape accounting for 36.2% of the national total compared to Gauteng’s 31.9%.
Back in the late-1990s, Gauteng hovered between 60% and 70% of the national total, while the Western Cape was between 10% and 20%.
The Western Cape’s economic size, its population, and its existing property market size in terms of square metreage, remain far smaller than those of Gauteng which remains the economic hub of SA.
However, StatsSA data points to not only residential building activity matching, and even surpassing, that of Gauteng recently, but also retail space planning and office space planning showing similar trends suggesting that the Western Cape is gearing up for more rapid growth in demand for property space than Gauteng.