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Exponential growth in Cape metro still driving WC, and now national inflation too

House price inflation.resize

According to the FNB House Price Index year-on-year national growth for the month of June was up slightly to 7.4%, from the 7.2% recorded in May. Comparatively the Western Cape market showed a year-on-year growth rate of 12.1%, up from 12% recorded for Q1 2016.

Considering the fact that other provinces are experiencing growth rates of between 2% and 5%, the FNB Property Barometer is largely attributing the rise in national house price inflation during Q2 2016 to the buoyant Western Cape market.

Lew Geffen, chairman of Lew Geffen Sotheby’s International Realty, believes that the double digits house price growth in the Western Cape originated in Cape Town at the first signs of a destabilising socioeconomic climate in South Africa about eight years ago.

“In recent years this growth has been sustained by the growing influx of upcountry buyers looking for the relaxed lifestyle and dependable municipal services,” explains Geffen. “Sentiment toward the Western Cape became progressively more positive as the province continued to show sound economic management and we are now seeing significant interest from repeat buyers from other provinces.”

Geffen says that although the market surge in the Western Cape was initially confined to Cape Town and surrounds, this is no longer the case, with buyers having to look elsewhere as the prices in Cape Town continue to soar.

Confidence driving the growthconfidence in property market.resize

According to the FNB Barometer analysis, the percentage of repeat buyers moving between provinces rose from just 6.4% during the 2008/09 recession to a high of 12.9% in 2015. The study also found that the Western Cape has the lowest percentage of repeat buyers leaving the province as well as by far the strongest net inward migration of repeat buyers from other provinces.

While this growth in the percentage of repeat buyers no doubt plays an integral role in the exponential growth seen in the Western Cape, it is Cape Town specifically which has outperformed other regions and major metros across South Africa. This is partially attributable to the fact that greenfield land is becoming increasingly scarce in the city due to the natural limitations imposed by the coastline, mountains, and the high percentage of protected land. This coupled with spiralling demand is expected to culminate in a dearth of investment opportunities and a significant increase in price in the metro.

In a recent Lightstone Property Newsletter, this outperformance of the Cape metro is investigated, along with possible reasons for this outperformance.

The Lightstone analysis aligns to the findings of the FNB barometer analysis:  The percentage of repeat homeowners in Gauteng and KwaZulu-Natal has remained constant or decreased slightly, whereas the Western Cape has seen a very consistent upward trend. In this instance, the percentage of repeat homeowners living in the Western Cape increased by 1.1% in 2015.

This results in an increase in house price inflation – more homeowners will lead to an increase in demand for property, in turn increasing house price inflation. A large percentage of repeat buyers settle in metros, explaining the outperformance of the Cape metro.

“The Western Cape’s repeat buying has accelerated steadily since 2009, now dwarfing the net migration rates of the other eight provinces and it continues to be the preferred semigration destination,” explains John Loos, FNB property economist, adding that it is therefore very likely that the Western Cape’s housing market will continue to outperform other regions and bolster the national average house price growth for 2016.


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