Good news for buyers as upmarket house prices drop in Cape Town
MAIN IMAGE: From left, Ross Levin, director for Seeff Atlantic Seaboard, Waterfront and City Bowl; Tony Clarke, managing director for Rawson Property Group; Richard Hardie, CEO of Knight Frank and Basil Moraitis, Pam Golding Properties area manager.
Average house price growth in the Mother City may have dropped to its’ lowest level in a decade but it’s all part of the property cycle says experts. Cape Town remains SA’s jewel in the crown, it’s very own Monaco.
In the first quarter of this year Cape Town has seen on average the lowest house price growth in a decade and FNB expect prices to continue to drop for a while longer especially in the most expensive areas near the mountain says Siphamandla Mkhwanazi, FNB analyst.
He says the downward adjustment is to be expected as the city’s average house price far outstrips what the average household can afford – Mkhwanazi explains this at the hand of the affordability price-to-income ratio which peaked at 6.6 by 2018 (the highest it has been since FNB began keeping data in 2000). The previous peak was in 2007 (6.2) after which prices gradually declined until 2012 when it started to climb again. Based on this experience, Mkhwanazi believes there is reason to believe that the ratio will soon normalise, which, given the current tight economic situation, will only happen if house prices decline even further.
Among the areas hardest hit are the upmarket sub-regions close to the mountain such as the Atlantic seaboard and to a lesser extent the southern suburbs where house prices on average have had to come down. Moving down the price ladder and further away from the mountain, house prices in the northern suburbs are holding up better but are also showing a sharp deceleration in house price growth. In contrast, the more affordable sub-regions, which includes township areas and the Cape Flats, are showing house price growth in the double digits.
Commenting on the average downwards trend in house prices in and around Cape Town, property leaders were not concerned saying there are a number of reasons why a drop in average house prices was to be expected.
“It is no surprise that Cape Town price growth has slowed. After experiencing runaway price growth for the 5-year period to around 2017/8, the property market had to grapple with a number of challenges – the water crisis, DA/Patricia de Lille debacle, overall economic and political concerns and lead-up to the elections – all of which have had an impact on demand, and hence overall price growth,” says Ross Levin, director for Seeff Atlantic Seaboard, Waterfront and City Bowl.
The recent drop in the number of people moving to Cape Town from other provinces is another factor must be taken into account. Tony Clarke, managing director of Rawson Property Group, says semigration added to the over-inflated house price increase over the past years which has slowed down due to the water situation, the economy and of course our political situation. “The semigration phenomena created a bubble which would have burst if it continued, however now we are normalising with some of the more affluent areas taking the pain more than the middle market,” he says.
However, continues Clarke, the property market is cyclical – there are always ups and downs. “Our political situation may have exacerbated our most recent downswing, but – short of serious upheaval – it’s not going to halt the natural cycle that’s been happening since this industry began,” he concludes.
Good time for buyers and investors
Richard Hardie, CEO of Knight Frank, says Cooling prices was expected, a natural follow on from what has been a buyers’ market for the last year and will continue to remain so for the time being. It is a good time for certain buyers, he says, especially if they want to upscale.
What he doesn’t think will happen, is that earnings and house prices in Cape Town will ever be closer aligned making property affordable again. “The Mother City is seen as South Africa’s jewel in the crown, South Africa’s very own Monaco. It will always attract wealth from outside of the region which ultimately affects affordability for the man on the street,” says Hardie.
Fact is, Cape Town’s property market is supported by number of demand pillars, not just residential demand, but also demand for trophy homes, second homes, holiday properties and semigration says Levin. “Despite the slow-down in price growth, the Atlantic Seaboard/Waterfront/City Bowl will continue to attract investment, it is likely just a matter of time, so if you want to get in while the market is flat, now is a good time,” he says.
Basil Moraitis, Pam Golding Properties area manager, says recent activity in markets such as Camps Bay tends to show that buyers are taking advantage of the price correction to acquire prime property on the Atlantic Seaboard. “We remain confident that the exceptional lifestyle offering and captivating view sites will always remain compelling and justify a premium,” he says.
“With the drought seemingly behind us, and with buyers perceiving renewed value in the market, we anticipate an increase in momentum among those semigrating to the Cape from other regions – particularly once we approach the end of the traditionally quieter winter season. It needs to also be borne in mind that despite the price correction experienced, the Cape remains South Africa’s top-performing market. Over and above this, we are also seeing an increase in top-end sales over the R20 million mark, which demonstrates increased confidence in the local residential property market,” he concludes.
After all, the Cape remains one of the top performing property markets in the country.
Related articles: A real look at Cape Town house prices (amid Eskom woes)