Despite the economic slowdown, Western Cape house price growth has shown strong performance, outperforming other provinces and neighbouring Namibia. This is according to the latest First National Bank (FNB) Property Barometer.
At a media briefing by John Loos, FNB household and property sector strategist, in Cape Town today, he noted that the Western Cape is also exceeding Namibia in terms of house price growth, which has generally outstripped South Africa.
“It is old news that Namibia’s economic growth rate has been well-above that of South Africa’s over the past decade, often exceeding the 6% growth mark. This has been supported by strong levels of fixed investment in that economy. This, accompanied by a widely reported lack of newly available land for development, has translated into very strong average house price inflation in that country,” explained Loos.
The cost of property
As with South Africa, Namibia has also experienced a slowing in house price growth. However, in the first quarter of 2016, the average transaction price of a house was estimated at R 1, 587 million. The Western Cape, by comparison, the most expensive province in South Africa, had an estimated average house transaction price of R 1, 353 million.
While the average transaction price may be higher for Namibia, the FNB Property Barometer highlighted the percentage of growth experienced, which is higher for the Western Cape.
Loos pointed out that the FNB Western Cape House Price Index for the first quarter of 2016 increased by 12% year-on-year. During the same period, Namibia experienced 8.1% growth, followed South Africa’s Eastern Cape with 7.6%, KwaZulu Natal at 5.6% and Gauteng with three percent growth.
“We believe that this relatively superior residential market performance within the Rand area is due in part to a greater land constraint that the Western Cape possesses relative to, for instance, land-locked Gauteng. But it goes further than this, to the province having built a perception of good provincial and Cape Town Metro management, and the combination of a good lifestyle as cities go, along with a strong services-dominated economy that provides steadily improving business and employment opportunity,” said Loos.
The buyers
FNB’s study revealed that the Western Cape has the lowest percentage of repeat buyers (those who buy and sell a property within six months of each other) leaving the province. In addition, the Western Cape also has the best net inflow of repeat buyers. In others, repeat buyers are leaving other provinces to purchase property in the Western Cape, while those in the Western Cape are generally selling property and purchasing another property in the province.
“The Net Inflow of Repeat Property Buyers to the Western Cape has become nothing short of spectacular, measuring 12.2% of the province’s repeat buying, having accelerated steadily since 2009, and now dwarfing the net migration rates of the other eight provinces,” added Loos.
However, despite this, Loos highlighted that there is speculation that a large portion of younger skilled Western Cape residents leave the province for Gauteng to start their careers in the larger provincial economy. This is difficult to measure, however, as many of these people would be first time home buyers, and therefore have not yet appeared on the deeds database to allow for a migration analysis.
“What we do know, though, is that the Western Cape has, since 2009, had a noticeably lower level of first time buying than the national average, according to our FNB Estate Agent Survey,” stated Loos.
Despite the suspected skills migration to Gauteng, FNB noted that it still believes that the Western Cape is doing well in the “war for skills”. In the long term it is thought that the Western Cape has the will have the strongest economic growth rate of South Africa’s provinces.
While still outdoing the other provinces in terms of growth, the Western Cape’s growth is starting to wane. Loos explained: “The region is unlikely to escape the global and domestic economic slowdown, however. Indeed, some of the sources of residential demand in the Western Cape have already showed signs of slowing. The FNB Estate Agent Survey points to a year-on-year decline in Residential Activity levels recently, as one would expect in this credit-dependent residential market when interest rates are rising.”