Western Cape House Prices outpace other Provinces
Western Cape House Prices outpace other Provinces
Western Cape house price growth continues to outpace other provinces in South Africa, but there are signs of this slowing as affordability deteriorates.
The 7.7% average house price inflation rate for the Western Cape means the province still had the strongest house price growth in SA, followed by the Eastern Cape (6.8%), KZN (5.9%) and Gauteng (4.6%).
According to the 2nd Quarter 2015 FNB Western Cape House Price Index, the average house price rose 7.7% year-on-year, slower than the previous quarter’s 8.2% and down from a high of 10.4% reached in early 2014.
Real house price growth, when house prices are adjusted for Western Cape consumer price inflation, came in at a revised 2.67% year-on-year. This also represents a minor deceleration from a 3.4% rate in the previous quarter, says FNB Home Loans household and property sector strategist, John Loos.
He says the deceleration in real house price inflation emanates partly from slowing nominal house price inflation, but more significantly from the impact of last year’s sharp global oil price drop subsiding, giving way to a renewed rise in Western Cape Consumer Price Index (CPI) inflation from a 1st quarter low of only 4.6%, to a 4.9% year-on-year average CPI inflation rate for the 2nd quarter based on April and May CPI numbers.
The average price of homes financed by FNB in the Western Cape was R1 230 487 in the 2nd quarter, making it on average the province with the most expensive homes based on homes transacted, significantly higher than the second most expensive province, Gauteng, with an average price of R1 011 214.
The 7.7% average house price inflation rate for the Western Cape means the province still had the strongest house price growth in SA, followed by the Eastern Cape (6.8%), KZN (5.9%) and Gauteng (4.6%).
The Index notes that the City of Cape Town through 2014/15 has shown mildly stronger average house price inflation compared to the rest of the province, but was only marginally higher than the overall provincial rate of 7.7%, having slowed from a 2nd quarter 2014 11.8% high.
The average estimated value of homes transacted in the City of Cape Town was R1 265 766. In recent times the City of Cape Town has “out-inflated” other major metros, says Loos. Its 2nd quarter house price inflation rate of 7.8% is significantly stronger than Tshwane (4.7%), Nelson Mandela Bay (4.6%), Joburg (3.5%), eThekwini (3.3%) or Ekurhuleni (1.6%).
So while Cape Town is still viewed as a hotspot, there are signs pointing to a slower pace of improvement, according to the Index.
The Western Cape is the most expensive market due to the province having the second highest per capita income behind Gauteng, but simultaneously having a significantly greater land scarcity than Gauteng, says Loos.
Having the fastest pace of house price growth in recent times may have much to do with the province’s growing popularity as a destination for a significant group of the country’s more affluent “repeat home buyers”, and its status as the country’s second fastest long-term growth economy, says Loos. “It also typically has a relatively low rate of departure, for either emigration of ‘semi-gration’ purposes.”
However, the Western Cape House Price Index for the 2nd quarter of 2015 once again showed a slowing year-on-year growth rate, which should not be too surprising, says Loos. “The global economy’s growth rate has tapered mildly in recent years since around 2011, as has the South African economy and the Western Cape economy cannot entirely escape these influences.”
Interest rates are now in a rising cycle, having started in 2014, and the Reserve Bank repeatedly warns us of more possible hiking to come.
Source: Copestone