Housing market: Western Cape remains strongest
All of the 5 FNB Major Regions’ House Price Indices showed slowing year-on-year growth in the 3rd quarter of 2016. The Western Cape Region Index remained by far the strongest performer, but it too may be “past its best” as at the 3rd quarter, showing slightly slower price inflation compared with the multi-year high of the previous quarter.
FNB Major Region House Price Indices
The FNB Major Regions House Price Indices all showed slowing year-on-year growth in the 3rd quarter of 2016. Gauteng, the largest region, has been leading the way to slower average house price growth for a some years now, and its year-on-year rate of increase reached a lowly 2.1% in the 3rd quarter of 2016. This is further down from the 2.7% rate for the previous quarter, having slowed all the way from a 9.3% high at the end of 2012.
Gauteng is not the weakest in terms of house price growth, though. The FNB Minor Provinces House Price Index (including Mpumalanga, Free State, Northern Cape, North West and Limpopo Provinces) rose by a mere 0.8% year-on-year in the 3rd quarter, while the Eastern Cape Province had the slowest growth rate of 0.1%. Slightly stronger than Gauteng was KZN, with a house price growth rate of 4.2% year-on-year, albeit also on a slowing trend.
But the strongest performing province by far remained the Western Cape, with year-on-year house price inflation of 10.5%. Through 2015 and early-2016, the Western Cape Housing Market bucked the broader national trend, strengthening for much of the period while the rest of the country trended weaker. FNB believes this was due to the province reaping the benefits of the strongly positive perceptions that it had built up for being the province with a combination of good lifestyle, well run, and with very good economic opportunity.
In recent years, FNB has seen the Western Cape having a strong “net inward migration” of repeat home buyers, something the other 8 provinces don’t have, and this may have provided some additional support to the region’s housing market. And on the supply side, around the City of Cape Town Metro there exists a more significant land constraint, with sea on 2 sides and mountainous areas in the middle, than is the case with the Land-locked Gauteng.
The Western Cape thus remains the most expensive province, with an average house price of R1,256,372, with Gauteng in 2nd spot with an average price of R1,016,804, and KZN 3rd with R988,142.
Gauteng and Western Cape The 2 Most Affordable Despite Being The 2 Most Expensive
Despite the Western Cape and Gauteng being, on average, the 2 most expensive provinces price-wise, they are not the least affordable.
They also have by far the highest Per Capita and Per Household Incomes. The Western Cape had the highest Per Household Income of the major regions, to the tune of R245,788 in 2015, as estimated by IHSGlobalinsight. Gauteng was not far behind with R229,192, with KZN a significantly lower 3rd at R173,103. On a Per Capita Income basis, Gauteng had the highest, estimated at R72,951 in 2015, followed closely by Western Cape with R70,628, and KZN 3rd with R42,702, far lower than the top 2.
So the Western Cape and Gauteng are well ahead of the rest when it comes to either Per Capita Income or Per Household Income estimates. This translates into these 2 provinces being the most affordable, when measuring affordability in terms of house prices relative to per household income.
Gauteng was the most affordable of the Major Regions in 2015, with an estimated Average House Price/Per Household Income Ratio of 4.44. The Western Cape is the 2nd most affordable region with a ratio of 5.11, while the least affordable of the major provinces is the Eastern Cape, with a high Average Price/Per Household Income Ratio of 6.13 in 2015.
However, despite the Western Cape being one of the more affordable housing regions, due to its high Per Household Income, its affordability has deteriorated more noticeably than the rest in recent years, from a Price/Per Household Income Ratio low of 4.37 in 2011 to 5.11 in 2015, and it is perhaps this affordability deterioration that may finally be starting to slow the province’s house price growth after a very strong run.
Author John Loos, FNB