The Western Cape is driving the national housing market

Private Property South Africa
Private Property Reporter

Recent reports indicates that the Western Cape’s dynamic property market is biggest contributor to national house price inflation.

The Western Cape property market is regarded as the strongest and most stable regional housing sector in the country.

The Western Cape has constantly achieved double digit quarterly increases in spite of an unstable economy, while other provinces have remained stagnant and in the single digit price growth territory.

The Western Cape’s influence on the market:

According to a recent FNB Property Barometer, statistics indicate that the impact of the region’s market power is no longer confined to the Western Cape, but has also become the main driving force behind the national house price inflation rate.

The report largely attributes the rise in national house price inflation to the Western Cape’s property market, during the second quarter of 2016.

According to The FNB House Price Index, there was a 7.4% year-on-year national growth for the month of June, which was slightly higher than the 7.2% rate recorded for May, “extending the recent mild accelerating trend in average house price inflation to 5 months”.

This is in contrast to the Western Cape market who achieved a second quarter year-on-year house price growth rate of 12.1%, which was up from 12% during the first quarter of 2016.

According to the report, the buoyancy of the Western Cape’s housing market is driving the national average, while the remaining other provinces have remained at an average growth rate of between 2% and 5%.

Lew Geffen, Chairman of Lew Geffen Sotheby’s International Realty, predicts that the recent Local Government Election results could boost the national property market with greater international confidence in the country’s economic outlook. For the medium term however, the Western Cape’s resilience will continue to be a core growth force in the residential sector.

Geffen says, “Shortly after the election results were announced international ratings agency Moody’s indicated that increased political competition had the potential to increase reform momentum in the lead-up to the 2019 National Government Elections.

“It’s quoted as saying that ‘over the medium to longer term this would indicate a shift from redistributive policies towards more growth-orientated economic management and effective service delivery’ and if that proves to be true it can only be good for the country’s economy.”

Geffen says even mild national economic growth, which the Reserve Bank’s Monetary Policy Committee currently predicts will be 0% in 2016, would create more stability in the residential property market beyond the borders of the Western Cape and further drive house price inflation.

This is however, provided that international confidence in South Africa isn’t further weakened by Finance Minister Pravin Gordhan being under siege by the Hawks.

The buoyancy of the Western Cape market:

Exponential growth in the Western Cape’s property market was first experienced in Cape Town around 8 years ago, when the socio-economic climate of South Africa began to lose stability. In recent years, the increase of upcountry buyers in search of a more relaxed lifestyle and better service delivery, has since escalated to a flood.

“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.”

Chris Cilliers, CEO and Principal for Lew Geffen Sotheby’s International Realty in the Winelands, says that “This scenic region has become increasingly popular with professionals looking to de-urbanise and buyers from Gauteng seeking a more secure lifestyle as well as retirees wanting move away from the hustle and bustle of the city.”

According to Cilliers, up to 40% of current investors in the Winelands and Somerset West are from Gauteng and other parts of South Africa.

The Winelands influx of upcountry buyers:

The scenic Winelands region has also seen more upcountry buyers investing in retirement properties which they rent out until they are ready to move to the Cape.

Cilliers says “This gives people the opportunity to plan for their old age with the confidence that their capital investment will not only hold its value, but will also offer excellent growth.”

According to Steve Thomas, Franchise Manager for Lew Geffen Sotheby’s International Realty in False Bay and Noordhoek, part of Cape Town’s property market’s success is as a result of the ever-growing number of upcountry investors. These buyers make up to 30% of buyers in the most sought-after areas, with sales peaking during the summer holiday season.

“We have noticed a significant shift in the buyer demographic in recent years with the False Bay coastline fast becoming the new ‘hot spot’ for upcountry buyers looking to invest in second homes in the Cape” says Thomas.

He adds that the shift in the buyer demographic is not only increasing the value of properties but is also filling the gap between asking prices and achieved selling prices.

According to Geffen, although the flood of upcountry buyers in the Western Cape market were initially confined to Cape Town and surrounds, this is no longer the case.

“The growing influx of upcountry investors moving to the Cape has seen property prices in Cape Town soar and, as a result, buyers started to look further afield to other coastal towns where they can enjoy a similar lifestyle at more accessible prices.”

Geffen says that, “Semigration currently accounts for 35% to 40% of all sales in the Garden Route and for the first time our offices in towns like Knysna are now selling more primary residences than holiday homes to buyers originating in Gauteng.”

The FNB Barometer analysis indicates that the percentage of repeat buyers moving between provinces increased from 6.4% during the 2008/09 recession to a high of 12.9% in 2015.

The report further shares that the Western Cape incurs the lowest percentage of repeat buyers leaving the province and the strongest net inward migration of repeat buyers by far from other provinces. According to the report, this is as a result of the city’s solid economic growth rate and perceptions of a better quality of life.

Cape Town’s shortage of land:

While it is evident that the migration from other provinces is a key contributing factor in the high performance of the Western Cape housing market, another prime influence is the city’s inability to expand as a result of the region’s topography.

The city’s coastline, mountains and the percentage of land under conservation all pose natural limitations on Cape Town’s ability to expand.

The escalating demand for greenfield land, which is becoming increasingly scarce, may soon result in a shortage of investment opportunities and sharp increases in the price of properties.

According to FNB Property Economist John Loos, “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.

“It is therefore very likely that we will continue to see the Western Cape’s housing market outperform the other regions and bolster the national averages for the remainder 2016.”

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