House price growth in the Western Cape, South Africa’s best performing region, is starting to slow down.
FNB’s latest House Price Index has revealed that house price growth in the Western Cape has slowed to 5.7% in the second quarter from 6.9% in the previous quarter. This second quarter performance is significantly slower than 10.8% multi-year high recorded in the first quarter of last year. The bank expects the Western Cape market to cool further in the coming quarters.
How South Africa’s other property markets compare
In spite of the slow down, the Western Cape market is still outperforming South Africa’s other major regions. The next fastest growth rates were Gauteng at 2.3% and KZN at 2%. This was followed by 1.7% year-on-year growth in the FNB Smaller 5 Provinces House Price Index (includes Mpumalanga, North West, Limpopo, Free State and Northern Cape Provinces), while the Eastern Cape experienced a slight decline of -0.1%.
Two reasons for the strong growth in the Western Cape
The FNB House Price Index suggests that one of the reasons for relatively strong house price growth in the Western Cape is strong economic growth – the province has the second highest economic growth rate (0.9%) after Gauteng (1.0%). Land constraints in the Western Cape drive up demand and in turn prices. Landlocked Gauteng however has more housing available so does not experience the same supply and demand issue.
The main driver of price growth in the Western Cape is believed to be the net inflow of repeat home buyers from elsewhere in South Africa.
Affordability could see the Western Cape market slow further
With an average transaction price of R1.437 million in the second quarter of 2017, the Western Cape property market is the most expensive in South Africa. Gauteng is the next highest with an average transaction price of R1.050 million.
“In-affordability” in the Western Cape is offset somewhat by the fact that the province has the highest per Household Income.
Household income 2016:
- Western Cape – R248, 587
- Gauteng – R241 476
- KZN – R173, 871
However, the Western Cape has shown greater housing affordability deterioration since 2011 than any other major region. The net result of this that first-time home buyers in the region are battling to enter the housing market.
The mounting affordability challenge is tipped by the bank to be the key reason for house price growth to taper off in the near term.