Why Western Cape purchasers are battling in a buyers’ market
We are now firmly in the grip of a buyers’ market: Fewer buyers, more sellers and a reduced number of sales. The current housing market reflects the state of the nation and the economy, both in terms of price growth and the level of consumer and business confidence.
This is according to Herschel Jawitz, CEO of Jawitz Properties, who says in the current market buyers look for value and tend to favour similar properties for less in lower-priced suburbs.
“Regrettably, many sellers are still not heeding market-related prices which, of course, means that homes take longer to sell,” he says. “According to the latest FNB Residential Activity report, properties now take 14 weeks on average to sell, up from 11 weeks in the previous quarter. Nationally, property price growth is barely keeping up with 6% inflation, so in real terms there is little to no growth. For real-price growth, 2016 is likely to ‘break-even’.”
But while consumer confidence is low, there are still sales taking place – albeit at a reduced number. According to a recent feature in which HomeTimes analysed sales figures for 26 mid-value suburbs, the average drop in sales was 33% for the year-to-date (30% less sectional title units and 36% fewer free-standing homes).
Property demand in Cape Town in particular and the Western Cape, in general, continues to outstrip supply, according to Jawitz, who says the region offers a desirable lifestyle and sea views; a general scarcity of homes on offer means there is a different level of buyer confidence in that region.
While there is strong sense that there is less crime in the Western Cape, StatsSA’s Community Survey 2016 reveals that 9.7% of Western Cape household say they were victims of crime – this is 2.2% higher than the national average of 9.7%. Gauteng is second at 9.1% of households, third is North West (7.6%) and fourth is Mpumalanga (7.4%).
Two of the top-10 worst precincts in terms of total crimes reported are in the Western Cape, with Mitchell’s Plain and Cape Town Central holding the top spots with more than 37,000 crimes reported between them. Johannesburg Central is third with more than 14,000 crimes reported in the precinct.
On the corruption-fighting front, the Western Cape scores highly, with some 6% of corruption reports coming from the province, according to Corruption Watch’s 2015 annual report. The province was, however, pipped by the Northern Cape and North West Province where 2% and 5% of reports of corruption emanated, respectively.
And while Gauteng accounted for 50% of all reports of corruption, by Corruption Watch’s own admission the province is both best represented by reporters and is home to the country’s largest population, as well as having the largest concentration of government departments within its borders.
SA’s “Eden” comes at a premium
While the Western Cape boasts very good infrastructure and 73% of its municipalities received clean audits in the Auditor General’s report back in June, living in the province comes at a cost: The replacement cost of a property in Cape Town when compared to Johannesburg is between 30% and 40% more, says Jawitz.
On the rental front, the Western Cape saw rental escalations of 12.13% for Q2 2016, according to TPN’s Market Strength Index. The province is also home to the best paying tenants, with 89.52% of renters in “good standing” – compared with a national average of 85.08%.
Tenants in the Western Cape are likely more willing to absorb rental price inflation four times the national average of 2.89% due to the scarcity of affordable rental accommodation and due to the fact that fewer first-time buyers are able to buy property there than anywhere else in the country. According to a report by FNB in July, Cape Town is home to the lowest percentage of first-time home buyers in South Africa, with only 16% of total sales being in this demographic – this considerably lower than the national average of 21%.
FNB property economist, John Loos, said at the time that first-time buyers accounted for between 20% and 25% of sales in all five of the other major metros, led by Nelson Mandela Bay. Cape Town was the only city where these sales accounted for less than 20% of its market.
“That region’s (Western Cape) low percentage may in part have to do with affordability challenges for young buyers that may have arisen due to recent strong house price inflation,” Loos said at the time, commenting on the figures extracted from Q2 2016 FNB Estate Agents’ Survey.
Lew Geffen, chairman of Lew Geffen Sotheby’s International Realty, says price inflation in Cape Town during the past decade has placed property in the most sought-after suburbs out of reach of most first-time buyers.
“For instance, in 2006 it was possible for a young family to buy a comfortable three-bedroom house in Rondebosch for around R1,5m with two- and three-bedroom flats generally ranging between R700,000 and R800,000,” Geffen says. “Despite the current market slump, an apartment in Rondebosch for under R1,5m would now be a very lucky find indeed and a family home for under R3m would most likely require considerably more than a little TLC.”
At the luxury end of the market, executive semigration is driving the Cape market as families relocate from Johannesburg to Cape Town while maintaining their business interest on the Highveld, says Jawitz.
“The Western Cape and specifically Cape Town will be the star performer with property price growth expected to be at or close to double digits in 2016,” he says, noting that a current stable interest rate environment impacts positively on affordability and sentiment. “Fortunately, there has been no noticeable tightening of the banks’ lending criteria. The common denominator in this market is price. In a buyers’ market, sellers are competing with other sellers for fewer buyers. There are quality buyers and banks are lending. How long a property stays on the market and at what final selling price depends entirely on how quickly the seller will respond to the market.”