WESTERN CAPE RESIDENTIAL PROPERTY MARKET APPEARS

WESTERN CAPE RESIDENTIAL PROPERTY MARKET APPEARS TO BE THE STRONGEST OF THE MAJOR
REGIONS
9 April 2015 - “The Western Cape appears to be the strongest of the major provincial residential
property markets of late,” says John Loos, Household and Property Sector Strategist at FNB Home
Loans.
The FNB Western Cape House Price Index for the 1st quarter of 2015 rose year-on-year by 9.2%. This
is mildly slower price growth than the 10.7% recorded in the corresponding quarter a year ago, but is
the highest price growth of the four major provinces.
But, Loos says, we base our assertion regarding the Western Cape’s strength on a little more than
merely our house price indices. Looking at our FNB Estate Agent Survey for the 1st quarter of 2015,
the Residential Activity Rating (on a scale of 1 to 10) for the Western Cape came in at 7.18,
noticeably above the national average rating of 6.73, while the province’s average estimated time
that properties are on the market prior to sale was 10.1 weeks, the lowest of the major residential
regions.
Other indicators of health emanate from the survey question regarding reasons for selling, where
18% of sellers are believed to be selling in order to upgrade properties, a higher percentage than the
moderate 14% selling to downscale due to financial pressure. Loos says to date there has been little
hint of a renewed rise in the percentage selling due to financial stress.
There are a few key drivers of the recently superior price growth performance, Loos believes. Firstly,
the province’s economy remains one of the strongest provincial economies in terms of long term
growth, only slightly behind Gauteng’s growth, and this keeps its employment and household
income growing faster than most other regions. Secondly, the perception of a well-run province with
a strong economy and good lifestyle contributes to the province being the only one of the Big 4 with
a net inflow of repeat home buyers, the other four all having net outflows.
In addition, the province is traditionally a sizeable foreign buyer destination, and the FNB Estate
Agent survey has noted a significant increase in foreigner buying in this region as property has
regained in popularity as a global asset class in recent years. The Western Cape benefits more from
such a recovery than do other regions.
The province is not without its challenges though. It is the most expensive property province. This is
despite its per capita income being slightly lower than that of Gauteng, the country’s wealthiest
province, but Gauteng is landlocked and therefore suffers less of a land scarcity than does the City of
Cape Town Metro Region.
This relatively less affordable market in Cape Town relative to Johannesburg, for instance, may be
reflected in Cape Town’s apparent lower level of 1st time buying. Whereas the 1st quarter Estate
Agent Survey estimated 1st time buying to be 21% of total Cape Town home buying, in Johannesburg
this was 31%, and has been higher than in Cape Town for quite some time.
Does relatively better home affordability, and of course a far larger economy with more
opportunities make Gauteng a bigger attraction for young skilled employees? We believe it could,
says Loos, and suspect this is perhaps a reason why Gauteng continues to see its economy grow the
fastest in South Africa despite the Western Cape attracting older and better resourced repeat home
buyers.
Relative land scarcity and high home values has meant that Cape Town is further down the road to
“densification” of residents than the country’s other cities, and thus has less time to get this
densification right. Orderly and well-planned densification is key to maintaining urban lifestyle, and
it is thus important that public transport is improved, along with well-run public amenities. So far,
the emergence of transport alternatives such as cycle paths and rapid bus routes are encouraging
signs of forward planning, and Cape Town is the one big city which appears to have successfully
managed to avoid CBD (Central Business District) decay.
John Loos
Household and Property Sector Strategist
FNB Home Loans
Cell: 083-453 8096
Tel: 011-649 0125
Email: john.loos@fnb.co.za
Twitter: @john_loos