While economic and house price growth slowdown is the general direction in SA and Namibia, the Western Cape has recently bucked that trend to record the fastest average house price growth of the major regions, reports John Loos, FNB Home Loans household and property sector strategist.
The province is the most expensive within South Africa’s borders with an average estimated house transaction price of R1,353m. “Over the past 15 years,” says Loos, “its cumulative house price inflation has been estimated at 290.5%, more modest long term growth than the booming Namibia. But of late, it has been the only major region in SA and Namibia to show an average house price growth acceleration, while all else around it shows a slowing pace of growth.”
Highest house price growth in SA and Namibia
The FNB Western Cape House Price Index for the first quarter of 2016 rose a nominal 12% year-on-year. This is faster than the 10,5% recorded in the previous quarter, and is the highest price growth rate recorded since the first quarter of 2006.
This was followed by Namibia with 8,1%, and thereafter the other major South African provinces with Eastern Cape on 7,6%, KZN recording 5,6%, and Gauteng rising by 3%.
“We believe that this relatively superior residential market performance in SA and Namibia 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,” says Loos.
According to IHS Globalinsight estimates over the 10 year period from 2005 to 2014, the Western Cape achieved the fastest growth of South Africa’s nine provinces, narrowly ahead of Gauteng and KZN, averaging 3,4% per annum.
The all-round popularity of the province, from both an economic and lifestyle point of view, has also seen it recording a strong net inflow of repeat home buyers, according to FNB’s own estimates. “This net inflow, in turn, we believe adds additional support to its residential market, over and above this province’s typical stronger level of foreigner buying compared to others.”
The Western Cape has developed a competitive advantage, which appears reflected in its having the lowest percentage of repeat buyers leaving the province, i.e. 7,3% of total repeat buyers, as well as by far the strongest net inward migration rate of repeat buyers from other provinces, according to Loos.
“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.
Lower levels of first time buying
“We are not convinced, however, that the region has it all its own way with regard to skills migration, and suspect that a significant portion of its younger skilled inhabitants head inland to start their careers in the larger Gauteng provincial economy. However, we can’t measure this, as many of these people would be aspirant first time home buyers, and as such haven’t yet appeared on the deeds database.
“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. High property values are often extolled as a virtue, but if they ultimately prohibit the attraction of skills due to lack of affordability, they can eventually become a negative factor for economic growth. This is potential risk for the Western Cape,” he says.