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Drought likely part of 'cooling' Western Cape house price growth - expert

Apr 04 2018 15:10

Cape Town - The severe drought in the Western Cape could be starting to play a "cooling" role on its economy as well as on its housing market, according to John Loos, household and property sector strategist at FNB.

The once lively house price growth in the Western Cape has slowed to nothing more than a "pedestrian" pace, in his view, in line with the rest of the country.

The FNB Western Cape House Price Index has slowed to what Loos describes as a "lowly" 1.5% year-on-year (y/y) growth for the first quarter of 2018. House price growth in the province is now below the national average house price growth rate of 2.6% for the first quarter.

"Not long ago, the Western Cape's relatively strong house price growth was a boost to the national average price growth," says Loos.

For him this recent "normalisation" of house price growth in the Western Cape has become a key additional constraint on the national house price growth rate.

"Given that the Western Cape is the second largest housing market by value, a slowdown in its house price growth all the way from 10.9% in the second quarter of 2016 to 1.5% in the first quarter of this year makes a major difference to the province’s impact on the national average," says Loos.

The slowing in the Western Cape’s house price growth is, however, no surprise to him. He describes the region’s home values as having become "relatively unaffordable" in recent years.

"It has severely restricted the pace of new entrants to this market and possibly even giving affluent 'semi-grants' from other regions in SA second thoughts of late," says Loos.

Gauteng

At the same time, the Western Cape’s slowing house price growth has not yet coincided with an expected strengthening in house price growth in Gauteng.

"We have been more upbeat about housing market strength to come in Gauteng, SA’s largest market, but as yet have not seen this translate into any house price growth acceleration," says Loos.

The FNB Gauteng House Price Index still showed slow y/y growth of 1.4% in the first quarter of this year.

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