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Is Western Cape property market losing steam?

Cape Town - While the Western Cape was the clear “outlier” in 2016, with far stronger house price growth than the rest of the country’s major regions, there have recently been clear signs that this market has been slowing, according to John Loos, household and property sector strategist at FNB.

The fourth quarter 2016 year-on-year average house price growth of 8% for the Western Cape remains a strong one, he pointed out, and still far above the other major regions, but has slowed for three consecutive quarters from a 10-year high of 10.6% reached in the first quarter of 2016.

Loos said on Monday it appears from the FNB House Price Indices that the Eastern Cape and KwaZulu Natal are the weaker of the major provinces, which may have to do with a combination of a high dependency on a weak manufacturing sector as well as drought conditions.

READ: Two SA cities on top property list for rich and famous

"Somewhere in the middle, Gauteng ticks along slowly, with the City of Tshwane appearing to be its stronger sub-region," said Loos.

The average estimated house price in the Western Cape is R1.411m compared to Gauteng with an average price of R1.042m.

"It is likely that, after a recent period of very strong house price growth in the Western Cape, a mounting affordability challenge in the region, especially for aspirant first time buyers, has started to put some brakes on demand growth."

Since the beginning of 2010 - the start of the post-2008/9 recession recovery - the average house price for the Western Cape has risen cumulatively by 76.6%. By comparison, the next strongest growth was in KZN, with 45.3% and Gauteng with 41.3% over the same period.

"The Western Cape has benefited from a period of strong confidence in the region’s long term economic prospects, and has attracted a very strong net inward migration of repeat home buyers from other provinces on recent years," said Loos.

"However, ultimately affordability has to play a role, and perhaps this is becoming evident when we examine our FNB Estate Agent Survey results to observe a low level of first time buying in the region."
 
Using the average for the final two quarterly surveys of 2016, estate agents in the City of Cape Town estimate first time buyers to make up a mere 10% of total home buyers. By comparison, all other major metro regions have higher percentages, with Tshwane and the greater Johannesburg Metro regions registering 22% and 28% respectively.

Remaining popular

According to the latest Pam Golding Residential Property Index, house price growth in the Western Cape stabilised at just below the 10% mark by the end of 2016 compared to the national average of 3.9% for December.

The PGP national house price index indicates that inflation dipped to below 4% during the final months of last year - the lowest since the last quarter of 2012. PGP said in a statement that the Western Cape remains strong, though, with an average house price inflation of 9.69% for the full year of 2016.

According to PGP national general manager and Cape regional head Richard Day, the Western Cape remains a popular investment option for buyers who are “semi-grating” from Gauteng and other parts of the country. The lower price band of less than R1m is the top performing sector in the Western Cape, with an average house price inflation of 11.87%.

Inflation in the Western Cape’s upper price band of more than R2m was 6.06% for the full year in 2016 - above the national average of 4.88% across all price bands.

PGP Atlantic Seaboard area manager Basil Moraitis said the demand for properties in suburbs in this area remains robust.

“Buyers want the trendy, cosmopolitan lifestyle that Cape Town offers. We have the mountain, pristine beaches and Atlantic Seaboard properties are also well located near to attractions such as the V&A Waterfront and the vibrant De Waterkant and city centre,” he explained.

Lindsay Beck, PGP area manager for the Southern Suburbs, said buyers moving from other provinces want the assurance of a safe environment, and many opt for secure estates in prime areas.

“They also look for 'country living' within a few minutes’ drive of the city and other attractions. Suburbs such as Constantia and Bishopscourt, with their larger properties nestled within green belts, vineyards and stud farms, tick these boxes,” said Beck.

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