The FNB Western Cape House Price Index for the second quarter of 2015 showed year-on-year inflation of 7.7% – the highest of the four major provinces in South Africa, according to John Loos, household and property sector strategist at FNB.
Research shows that estate agents in the Western Cape experience things better than most other major regions, and its residents have more confidence in the long-term future of the region than the rest of South Africa’s major regions.
“Aggregated supply and demand-related data for the province points to a region that has outperformed as of late,” said Loos.
The estimated average house price in the Western Cape was R1 230 487 in the second quarter, based on what was transacted and financed through FNB, making it on average the province with the most expensive homes. Gauteng is the second most expensive province with an average house price of R1 011 214.
Estate agents in the Western Cape estimate that the average time of homes on the market prior to sale has dropped to as low as 9.1 weeks, considerably quicker than the 12.1 week national average estimate, and far quicker than the province’s average time of 20 weeks back in the third quarter of 2013.
“However, these market strength indicators are not necessarily a sign of longer term confidence levels. Often they are just a reflection of income and interest rate levels on the one hand, and land scarcity on the other hand,” explained Loos.
“That the Western Cape is the most expensive residential market has much to do with it having the second highest provincial per capita income behind Gauteng, but simultaneously having a greater land scarcity than landlocked Gauteng.”
The latest FNB Estate Agent Survey shows that Western Cape residents have significantly higher confidence in the province’s residential property as an investment. Western Cape home owners also have greater confidence in the province’s long term future as a place to live.
The survey estimates that buying to let in the province is at higher levels than the national average, despite a lower estimated average yield than most major regions.
The province does appear, however, to have a lower-risk tenant base, with a higher percentage of tenants in good standing with their rent compared to certain other major regions.
Emigrating and relocating
For the first half of 2015, the estimated percentage of sellers in the Western Cape selling in order to emigrate was estimated at 2%, around half of the national average percentage which hovers nearer to 4%, according to Loos.
For the same period, the estimated percentage of sellers selling in order to relocate from the Western Cape to another part of South Africa was 4.5% – once again significantly lower than the 9% national average estimate.
Loos cautioned, however, that the region’s housing market cannot defy gravity indefinitely, and the signs are that its pace of strengthening has been slowing recently. Affordability constraints are mounting as house price growth outstrips average income growth.
The Western Cape house price inflation rate of 7.7% year-on-year represents a slower pace of growth since a 10.4% high reached early in 2014.
“This slowing pace of growth is believed to be the result of a deterioration in housing affordability in the province through 2013 and 2014. House price growth outpacing household income growth in the province, along with the start of interest rates last year, has driven this affordability deterioration,” said Loos.
The Western Cape average house price/average household income ratio has risen – therefore, deteriorated – from 4.5 in 2011 to 4.89 by 2014, while the installment value on a new 100% loan on the region’s average priced house/average household income ratio has risen – therefore deteriorated – from 0.49 in 2012 to 0.54 in 2014.
First time buyers
Another trend the FNB survey has picked up in the Western Cape is an increase in the estimated first time buyer percentage. According to the survey, about 25% of buyers in the province in the second quarter of 2015 were first time buyers – up from 21% in the previous quarter.
“A potential concern is that this rise in the level of first time buying may be driven by increased ‘buyer panic’, the result of recent years of market strength and strong house price growth,” said Loos.
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