The Western Cape has managed to “buck the trend” of slowing house price growth of late, John Loos, household and property sector strategist at FNB, said on Tuesday.
With house price growth at 12% year-on-year, the Western Cape came out tops in the first quarter of 2016, followed by the Eastern Cape (7,6%), KwaZulu-Natal (KZN) (5,6%) and Gauteng (3%).
Loos believes the Western Cape’s relatively superior residential market performance is due in part to its greater land constraint compared to, for instance, land-locked Gauteng. The perception built of the Western Cape as having a good provincial and Cape Town metro government, could have been another positive factor impacting house price growth, in his view.
“The same goes for the province’s combination of a good lifestyle as cities go, along with a strong services-dominated economy that provides steadily improving business and employment opportunity,” said Loos.
According to IHS Global Insight 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 year.
Despite the estimate that the Western Cape has had the strongest economic growth in over a decade, Loos warned that the province will not be able to avoid the so-called super-cycle stagnation phase that he suggests the SA household property industry is currently in.
In his view, the correction in real house prices is slowly starting, but what he calls a “stagnation period” could be a process of 10 to 15 years.
“Structural change aimed at improving the Western Cape’s long-term economic performance could, however, see it outperform the rest,” added Loos.
At the same time, FNB’s estimates peg the Western Cape as the province with by far the strongest net inflow of repeat home buyers from other provinces. In fact, since 1999 the province has had a positive net inflow of repeat buyers.
It would appear that more people are moving away from Gauteng for lifestyle reasons. These reasons would include retirement at the coast or simply wanting to get away from “the rat race”, according to Loos.
“The all-round popularity of the province, from both an economic and lifestyle point of view, has seen it recording a strong net inflow of repeat home buyers, according to our own estimates,” he said.
At the same time, there is a lack of repeat buyers leaving the Western Cape and those who do leave, mostly move to Gauteng for work-related reasons, in his view.
“The Western Cape has developed a competitive advantage, which appears reflected in its having the lowest percentage of repeat buyers leaving the province (7,3% of total repeat buyers), as well as by far the strongest net inward migration rate of repeat buyers from other provinces,” said Loos.
At the same time, the other big provinces, namely, Gauteng, KZN and Eastern Cape, find themselves often having net outward migrations of repeat buyers – in other words, more repeat buyers leaving those provinces than the number flowing in. The Eastern Cape did, however, move into slight positive net inward migration in 2015.
“Net outflows are something that one would think may not bode well for those regions’ future economic growth rates,” said Loos. In his view, the net inflow of repeat property buyers to the Western Cape has become nothing short of spectacular.
“It measured 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,” he said.
Estate agents in the Western Cape perceive the province as having the highest level of supply constraints, with 27% of the region’s agents citing “stock constraints” as a key factor influencing their perceptions of future activity levels – the highest of any major rand area region.
“Supply-side constraints, and the province’s relative popularity as a ‘semi-gration’ destination for South Africans from other regions are likely to see the Western Cape’s housing market outperform that of others in 2016,” said Loos.
“However, it is unlikely that this market can defy ‘economic gravity’ indefinitely, and we would expect to see its house price growth beginning to slow in the near future.”