Western Cape ‘key constraint’ to house price growth

Western Cape ‘key constraint’ to house price growth

The continued ‘normalization’ of housing prices in the Western Cape had a major impact on a surprisingly weak start to house price growth in 2018.

According to the latest FNB House Price Index, by property sector strategist John Loos, the national year-on-year house price growth for the first quarter is merely 2.6%, down from 5% in the last quarter of 2017. The average price of homes transacted in March was just over R1 million.

The ‘weak’ start to the year came as a surprise says Loos given the improved national sentiment and more positive economic outlook since the political changes that happened in February.

He says FNB remains of the opinion that the national market is strengthening, but it could be that there is “lag” between when residential demand picks up to when year-on-year house price growth starts to strengthen. Eventually the house price market will pick up he reckons.

Highlighted as a key constraint is the “normalization” of house prices in the Western Cape. The province is the country’s 2nd largest housing market by value and until recently could boast of having the strongest growth in house prices compared to any other major region. However lately house prices have begun to plateau out, eventually slowing house price growth in the province to only 1.5% for the first quarter of this year, touted on social media as the worst performance since 2010 and having a major impact on the national average.

Loos says the slowing of house prices in the Cape comes as no surprise. Certain areas in the province have become known for their relatively unaffordable property prices, making it difficult for first time buyers to enter the market and possibly giving affluent buyers from other areas second thoughts.

This is substantiated by FNB’s statistics on 1st time home buyers for the first quarter that placed the Western Cape on the weakest end of the spectrum and Gauteng on the strong end. Greater Johannesburg had an estimated 1st time buyer rate of 21.59% for two quarters and Tswane Metro an impressive 30.75%.

By comparison the strongest coastal metro was Ethekwini Metro (Durban area) with 20% followed by Nelson Mandela Bay lagging far behind with 10.5% and Cape Town Metro even weaker on 6.46%. Recent reports indicate that the property market in KwaZulu-Natal is picking up as is also evident from their average year-on-year house price increase of just over 5% for the last quarter of 2017 and the first quarter of this year.

Due to their strong performance among 1st time home buyers, Loos expects house prices to strengthen in Gauteng. Property Professional reckon another region to watch is KZN. Meanwhile homebuyers wait and see whether the Cape will be able to beat the current drought, hopefully substantial rain will fall during the approaching winter rain season.

In conclusion, there is reason to hope for better results towards the end of the 2nd quarter says Loos. In addition to the improved national sentiment following the appointment of Cyril Ramaphosa as President and the upgrade of the credit rate outlook from negative to stable by rating agency Moody’s, the 25 basis point interest rate cut in March is also expected to encourage more people to invest in property.

IMAGE SOURCE: fool.com.au

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