Subdued economic activity and lower disposable income levels have added to the continued downward trajectory of house prices that has been significant in Gauteng for the past four years, and more recently in Cape Town.
This is good news for buyers, but not so much for sellers. For the first time in two years, Cape Town estate agents are seeing the return of first-time home buyers to the region, says FNB analyst Siphamandla Mkhwanazi, more specifically to areas closer to Table Mountain, long out of their reach.
Mkhwanazi says data shows the luxury segment is not faring well and that the lower segment of the market is doing better. “But we don’t expect the lower segment to hold this for much longer. With the high prices, buyers started looking at more affordable areas further from the CBD, but as price corrections happen, it is believed the formerly out-of-bounds areas are becoming more attractive.”
But, in general, affordability has not improved sufficiently in the Cape, despite this sharp deceleration in house-price growth over the past 18 months or so.
“This suggests there is scope for further downward adjustment in Cape Town house prices. A nominal decline in prices is, therefore, conceivable at this point.”
He says it is also possible that house-price deflation seen in some upmarket areas “could reverberate throughout the city, resulting in meaningful improvement in affordability”.
This would, however, undermine meaningful recovery in national prices, which could ultimately prolong the period of subdued houseprice growth in South Africa. The luxury market nationally has been hard hit and buyers could pick up a bargain in that bracket.
The estimated average discount on asking price is at 14% in 2Q19, versus the 10% national average. “This implies buyers have a disproportionately high negotiating power in those segments,” says Mkhwanazi.
Adding to the perception of it being a buyers’ market are statistics from FNB’s latest House Price Index that show mortgage advances grew faster in May, recording 4.2%y/y up from 4.0% y/y in the previous month. “This is the highest increase since July 2016. If maintained, it could help support purchasing activity.”
How the suburbs have fared:
FNB’s 1Q19 City of Cape
Town Sub-Regional House
Price Indices showed
softening prices across
virtually all sub-regions.
The luxury
Atlantic Seaboard
has seen its average house-price growth plunge from a multi-year high of 25.5% y/y in 1Q16 to an all-time low of -5.1% by 1Q19.
The sub-region was the first to slide into contraction, with -0.08% y/y growth in 3Q18. The deflation appears to have spilled over to the rest of the regions near Table Mountain.
The
City Bowl
, the economic hub of the region, slid deeper into contraction in 1Q19, registering -2.0% y/y from a mild contraction of 0.2% in the previous quarter.
The
southern suburbs
(incorporating suburbs such as Claremont, Newlands and Observatory) followed suit and contracted by 2.4% y/y in 1Q19, from a peak of 15.4% y/y in mid-2015.
The
eastern suburbs
(incorporating suburbs such as Woodstock, Maitland and Pinelands), which for some time held up better than the rest of the regions surrounding Table Mountain, declined by 4.2% y/y in 1Q19.
The
northern suburbs
(generally in the middle of the price spectrum) are holding up relatively better, but are showing a sharp deceleration in house-price growth.
Meanwhile more affordable sub-regions in the city, which incorporate township areas, are performing well above the city’s average and remain in double digits.
The
Cape Flats
region has held relatively steady around the 12% mark over the past year, although it retreated to 11.3% y/y in 1Q19 from 12.1% in 4Q18.
Meanwhile FNB’s 1Q19 data showed Joburg’s estimated average house price growth softened to 2.1% y/y, from 2.9% in 4Q18 - the 13th consecutive quarter of decelerating house price growth in the city.
Generally, slowing prices are prevalent across virtually all sub-regions in Gauteng, with the higher-priced areas most affected.