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Western Cape holding up SA’s house price inflation

Table mountain cape townIn May 2016, the FNB House Price Index recorded a 7.4% year-on-year rate of increase, which is slightly faster than the 7.0% revised rate of April.

Given Consumer Price Index (CPI) inflation of 6.2% in April, in real terms average house price inflation was a modest 0.7% year-on-year in that month, reflecting a still-well balanced market. While demand has not been spectacular since the 2008/9 recession, supply constraints have been reported widely, and building levels of new homes have remained muted, contributing greatly to the market balance.

The average price of homes transacted in April was R1,075,033.

A mountain of strength

While possible key drivers of the mild acceleration in average house price growth, at a time when interest rates have been rising, include the lagged impact of a higher general inflation environment and a slightly better economic environment setting in during Q2 2016, the growth story belongs to the Western Cape’s housing market.

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“A key contributor in holding up the national house price index growth rate is the strong recent performance of the Western Cape region’s housing market,” said John Loos, FNB household and property sector strategist. “A lot of positive sentiment exists in this region – the country’s second-largest economic and residential property region after Gauteng, and along with significant land constraints, this has boosted the province’s house price growth into double-digits.

“The FNB Western Cape House Price Index recorded 12% year-on-year growth during Q1 (we only produce the provincial indices on a quarterly basis).”

By comparison, the other major regions were significantly slower. Eastern Cape recorded 7.6% year-on-year house price inflation in Q1, KZN 5.6%, Gauteng, the country’s largest region, rose 3%, and the smaller five provinces a mere 1.7%.

Photo: An aerial view over Cape Town, South Africa

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