Western Cape house price growth set to slow down | Fin24
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Western Cape house price growth set to slow down

Oct 24 2016 15:20
Carin Smith

Cape Town - Although the Western Cape remains by far the strongest housing market among South Africa's major regions, it ultimately cannot defy gravity for ever, John Loos, household and property sector strategist at FNB, told Fin24 on Monday.

"Next year I think the national average house price growth will be weaker as the weaker economy catches up with the housing market," said Loos.

"The Western Cape housing market will possibly still stay a slightly better performer next year, but I think its price growth will also slow."  

All five FNB Major Regions’ House Price Indices showed slowing year-on-year (y/y) growth in the third quarter of 2016.

"The Western Cape Region Index remained by far the strongest performer, but it too may be past its best as at the third quarter, showing slightly slower price inflation compared with the multi-year high of the previous quarter," explained Loos.

The latest index shows there was y/y house price inflation of 10.5% in the Western Cape. In 2015 and early 2016, the Western Cape housing market bucked the broader national trend, strengthening for much of the period while the rest of the country trended weaker.

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"We believe this was due to the province reaping the benefits of the strongly positive perceptions that it had built up for being the province with a combination of good lifestyle, well run and with very good economic opportunity," said Loos.

"In recent years, we have seen the Western Cape having a strong 'net inward migration' of repeat home buyers - something the other eight provinces don’t have - and this may have provided some additional support to the region’s housing market."

The Western Cape, therefore, remains the most expensive province, with an average house price of R1 256 372. Gauteng is in second spot with an average price of R1 016 804, and KwaZulu-Natal third with R988 142.

"Cape Town and surrounding towns like Stellenbosch are probably still the best property areas in the country. Land scarcities impact the supply side and keep house prices high. There are also estimates that the Western Cape economy will have the strongest growth long term," said Loos.

READ: Is greatest-ever property bull market ending?

He pointed out that despite the Western Cape and Gauteng being on average the two most expensive provinces price-wise, they are not the least affordable. They also have by far the highest per capita and per household incomes.

The Western Cape had the highest per household income of the major regions - R245 788 in 2015 - as estimated by HIS Global Insight. On a per capita income basis, the Western Cape's R70 628 is second after Gauteng.

However, despite the Western Cape being one of the more affordable housing regions due to its high per household income, its affordability has deteriorated more noticeably than the rest in recent years - from a price/per household income ratio low of 4.37 in 2011 to 5.11 in 2015.

In Loos' view, it is perhaps this affordability deterioration that may finally be starting to slow the province’s house price growth after a very strong run.

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