The lack of residential property is inflating the cost of homes in Cape Town according to specialist tenant credit bureau, TPN. TPN’s vacancy survey found that Cape Town, in contrast to the Gauteng market which is fairly balanced, has a massive demand that is struggling to be met. And this in turn is taking its toll on the pockets of its residents.
The near equilibrium of supply and demand in the area of Gauteng, however, has its downside and this can be seen in their low rental escalation of 3.23%. While in Cape Town, the lack of space together with the growing demand, has allowed for landlords to impose much steeper rent increases, of as high as 12.13 %. While this proves lucrative for the landlords, it’s putting financial strain on the tenants.
“The “one size fits all” adage simply does not apply to the property market. Supply and demand vary in each town and city, coupled with good standing credit assessments of tenant applications - and consequently - the level of vacancies related to each town results in widely shifting rental prices and escalations. Nationally, the average escalation rate of 2.89% indicates just how price-sensitive South African tenants are at the moment. The winter months bring higher utility usage and tenants are clearly becoming more conscious of their total rental account. Basic rental is just one component and in many cases, a more negotiable one where overall budgeting is concerned,” added the TPN rental monitor.
Housing price indices
First National bank (FNB) similarly conducted their own study, looking at the housing market trends nationally.
“The FNB Major Regions House Price Indices (FMRHPI) all showed slowing year-on-year growth in the 3rd quarter of 2016. Gauteng, the largest region, has been leading the way to slower average house price growth for some years now, and its year-on-year rate of increase reached a lowly 2.1% in the 3rd quarter of 2016. This is further down from the 2.7% rate for the previous quarter, having slowed all the way from a 9.3% high at the end of 2012. Gauteng is not the weakest in terms of house price growth, though,” stated FNB.
The FMRHPI (including Mpumalanga, Free State, Northern Cape, North West and Limpopo Provinces) rose by a mere 0.8% year-on-year in the 3rd quarter, while the Eastern Cape Province had the slowest growth rate of 0.1%,” commented John Loos, FNB’s household and property sector strategist.
The strongest in the sector, according to findings, remained the Western Cape.
“With year-on-year house price inflation of 10.5%. Through 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,” added Loos.
FNB believes 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.
“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. And on the supply side, around the City of Cape Town Metro there exists a more significant land constraint, with sea on two sides and mountainous areas in the middle, than is the case with the land-locked Gauteng,” remarked Loos.
The Western Cape also remains the most expensive province, with an average house price of R1,256,372, with Gauteng in second spot with an average price of R1,016,804, and KZN third with R988,142, reported FNB.
Justmoney‘s thoughts:
Buying a house is a big decision and one that requires careful financial planning and commitment. It is always advisable to consult a trusted financial planner when looking to do so. Property, while an investment, should also be viewed holistically in terms of geographical advantages, market value and trends. If you’re not sure whether you can afford your property in Cape Town or anywhere else in South Africa consult an accredited financial advisor to ensure that you are making the best decision for you and your future.
