PROPERTY BAROMETER FNB City of House Price Indices The 2 most expensive markets, the Atlantic Seaboard and , remain the strongest regions, but will certain 19 July 2017 more affordable markets begin to benefit from a search for relative affordability? Our 2nd quarter 2017 Sub-Regional House Price Indices

still show some of the most expensive regions to be the strongest. But as MARKET ANALYTICS AND SCENARIO FORECASTING UNIT home affordability deteriorates, we may be starting to see some of the more affordable regions come to the fore price growth-wise. Overall, though, our deeds data-driven City Of Cape Town House Price Index continued to show a gradually slowing price growth rate, albeit still JOHN LOOS: very strong. HOUSEHOLD AND PROPERTY SECTOR STRATEGIST THE OVERALL CITY PICTURE 087-328 0151 [email protected] Using Deeds Office Data, we compile a set of house price indices for key sub- regions within the City of Cape Town Metro using a repeat sales methodology.

LIZE ERASMUS We have then rolled up this set of sub-regions into an overall City of Cape nd STATISTICIAN Town Metro House Price Index. In the 2 quarter of 2017, the City of Cape 087-335 6664 Town’s estimated average house price growth rate remained in double-digit lize.erasmus@@fnb.co.za territory to the tune of 13.8% year-on-year.

However, while still very strong, this year-on-year price growth rate th represents the 5 consecutive quarter of slowing from a 10-year high of 15.7% revised rate recorded in the 1st quarter of 2016. The information in this publication is derived from sources which are regarded as accurate and reliable, is of a general nature only, does not constitute advice and may not be applicable to all circumstances. Detailed advice should be obtained in individual cases. No responsibility for any error, omission or loss sustained by any person acting or refraining from acting as a result of this publication is accepted by Firstrand Group Limited and / or the authors of the material.

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THE 2 MOST EXPENSIVE SUB-REGIONS REMAIN THE STRONGEST FOR NOW, BUT WILL SOME OF THE MORE AFFORDABLE REGIONS BEGIN TO GAIN APPEAL? 2ND QUARTER 2017 KEY CAPE TOWN SUB-REGIONAL HOUSE PRICE GROWTH RATES The FNB City of Cape Town Sub-Regional House Price Indices still show widespread strength across much of the metro. However, 7 of our 12 defined sub-regions saw their year-on-year growth having slowed in the 2nd quarter of 2017. Interestingly, too, is that certain of the major “affordable” regions have shown recent house price growth accelerations, perhaps highlighting the City’s residential affordability challenges (and resultant search for more affordable homes) after a strong price inflation run in recent years. Our FNB Estate Agent Survey continues to point to 1 st time buyers in Cape Town battling to buy homes far more than in other major cities of the country. IN AND AROUND THE THE MARKETS ARE STILL VERY STRONG, BUT 3 OF THE 4 SUB-REGIONS IN QUESTION SAW SLIGHT SLOWING IN PRICE GROWTH IN THE 2 ND QUARTER On the land-scarce Cape Peninsula, the 2 most expensive sub-regions in the City of Cape Town Metro, i.e. the Atlantic Seaboard and the City Bowl, continued to be the “hottest markets in the Metro despite some mild price growth slowing. The Atlantic Seaboard average house price inflation rate moderated only very slightly, from a multi-year high of 30.1% year-on-year in the 1 st quarter of 2017 to 29.9% in the 2nd quarter. The City Bowl has seen slightly more slowing, from its 22.7% year-on-year high in the 2 nd quarter of 2016 to 21.1% in the 2 nd quarter of this year, but it too remained “red hot”. Slower, but still strong, are the Southern Suburbs with 14.7% year-on-year growth, and the “Near Eastern Suburbs” (including amongst others Salt River, Woodstock and Pinelands) with 13.5%. The latter region has seen a noticeable price growth slowing from a high of 18.4% year-on-year in the 3 rd quarter of 2016. We would expect a near term slowing in price growth in the City Bowl and Atlantic Seaboard, after major affordability deteriorations, and with some signs of foreign buyer interest in weakening mildly. But housing markets can gain a momentum of their own, with investors/buyers acquiring their enthusiasm for an area/region merely due to the recent rampant price growth in that region, something we could term “recency bias” or perhaps “momentum bias”. Land shortages in these areas can play a key role, but can only go so far in boosting price levels before demand dwindles. For the time being though, the Atlantic Seaboard and City Bowl remain the 2 hottest markets in the City of Cape Town and possibly even in the entire South Africa.

DOES THE WESTERN SEABOARD BENEFIT FROM ITS LOCATION AND RELATIVE AFFORDABILITY AS A PORTION OF MIDDLE-TO-HIGHER INCOME DEMAND LOOKS FOR GREATER “AFFORDABILITY”? A key question is where does housing demand go next as the affordability of the regions on or near to the Cape Peninsula deteriorates. The Northern regions of the City of Cape Town have generally been more affordable, but they have their own challenges in terms of being further removed from the key employment nodes in the Southern Suburbs and City Bowl, and with increasing congestion making commuting ever more challenging. The northern region which is potentially an appealing alternative is the Western Seaboard. It is the nearest of our 3 major northern regions to the City Bowl, Claremont and other business nodes, is relatively affordable for higher income households compared to the Peninsula regions, but also has an appealing lifestyle, being located on the Atlantic coastline. And recently, we ask the question as to whether we have just started to see the Western Seaboard region outperform others in the northern areas as a result of its “competitive locational advantage” highlighted above? The Western Seaboard (Blouberg--Melkbos) average house price growth rate was estimated to have accelerated to 14% year-on- year in the 2 nd quarter of 2017, up from 13.4% in the final quarter of 2016. By comparison, the further removed -- region has slowed to growth of 6.8% (from 14% in early-2016), while the Bellville-Parow and Surroundings region has slowed to 8.3% growth (from 12.6% in late-2015). CERTAIN MORE AFFORDABLE REGIONS CAN LAG THE CYCLE, AND HAVE SHOWN ACCELERATIONS OF LATE In a relative boom period, one can often see the higher-priced sub-regions leading the cycle, but as their affordability becomes a mounting challenge the search for relative affordability can turn a portion of housing demand in the direction of more affordable sub-regions. This can cause the more affordable regions to lag the cycle, with their house price growth accelerating at a slightly later stage. It is possible that this is what we have begun to see in Cape Town’s major “affordable” regions, i.e. the and the Elsies River- -Macassar Regions. The former region’s year-on-year house price growth has accelerated for 5 consecutive quarters from 10.4% in the 1 st quarter of 2016 to 12.5% by the 2 nd quarter of 2017. The latter has reached 13.7% average price growth by the 2 nd quarter of 2017, having accelerated for 7 consecutive quarters from 5.4% in the 3 rd quarter of 2015.

1ST TIME BUYING AND AFFORDABILITY IN CAPE TOWN DETERIORATES FURTHER The evidence of mounting Cape Town affordability challenges continues to come from our FNB Estate Agent Survey which, for the 1st 2 quarters of 2017 showed a very low estimate of 1st time buyer levels in the City of Cape Town. Whereas the National Average estimate is that 1st time home buyers amounted to 21% of total home buyers in the 1 st half of 2017, Cape Town’s estimate was a far lower 6.64%, having deteriorated steadily from an average of 18.4% in 2015. We believe that this extremely low estimate is reflective of a significant affordability deterioration in recent years in the City of Cape Town Metro. This affordability challenge could conceivably contribute to some strengthening in more affordable sub-regions with the metro. ATLANTIC SEABOARD AND CITY BOWL ASIDE, THE PATTERN OF “STRONGEST PRICE GROWTH IN AND AROUND THE PENINSULA” HAS BECOME LESS CLEAR Stacking up all of the regions next to each other, the Atlantic Seaboard region remained the one with the strongest house price growth in the 2nd quarter of 2017 at 29.9% year-on-year. This was followed by the 21.1% of the City Bowl. These 2 regions were the clear top performers in the 2 nd quarter. However, whereas in previous reports we saw the other 3 of the “top 5” being in or around the Cape Peninsula, the pattern has become less clear. The Southern Suburbs region did take 3 rd spot by a very small margin with 14,7% year-on-year price growth. But coming into the top performer mix was the Western Seaboard (Blouberg-Milnerton-Melkbos) region in 4 th spot with 14% price growth. Thereafter, the far more affordable region of Elsies River-Delft-Blue Downs was in 5 th spot with 13.7% year-on-year average price growth.

LONGER TERM PRICE GROWTH TRENDS – 5-YEAR CUMULATIVE GROWTH RATES A look at the longer term big picture shows the strongest performance to have been clearly in and near to the Cape Peninsula. We calculate a 5-year cumulative house price growth rate by sub-region, over the period 2nd quarter 2012 to 2nd quarter 2017. Over this period, all 5 of the top performing sub-regions were the ones closest to the Cape Peninsula’s mountainous areas. Leading the pack was the Atlantic Seaboard, with estimated cumulative price growth of 143.1% over the period, followed by the City Bowl with 114.2%, City Near Eastern Suburbs with 92.6%, Southern Suburbs with 84.8%, and Southern Peninsula with 73.2%.

CONCLUSION Although the City of Cape Town has seen some mild slowing in average house price growth over the past 5 quarters, at 13.8% year-on-year this market remains very strong. Slowing growth in the 2 nd quarter of 2017 has taken place in 7 of 12 regions of the City. In the 2 nd quarter of 2017, the top 5 growth regions are no longer all those on or nearest to the Cape Peninsula. The 2 top performers, i.e. the Atlantic Seaboard and the City Bowl are on the Peninsula. But certain more affordable regions a little removed have started to move into the top 5 performers in terms of price growth, notably the Western Seaboard, a relatively affordable region for middle to higher income households looking for the next best thing from a lifestyle and commuter location. In addition, we have seen recent accelerations in the “affordable regions” of the Cape Flats as well as the Elsies River-Blue-Downs-Macassar sub-region. Such affordable regions can lag the overall cycle.

Quarterly year-on-year percentage change CITY OF CAPE TOWN SUB-REGION HOUSE Cumulative 15- Cumulative 5- PRICE PERFORMANCE SUMMARY TABLE Q3-2016 Q4-2016 Q1-2017 Q2-2017 year growth year growth CT METROPOLITAN ROLL UP 15.22% 14.80% 14.34% 13.82% 523.56% 77.61% Atlantis - Mamre -3.12% -5.67% -7.59% -10.03% 430.50% 27.21% -Eerste Rivier 9.01% 10.46% 12.22% 13.65% 540.24% 49.86% Bellville and Surrounds 10.41% 9.40% 8.82% 8.34% 367.34% 52.87% Western Seaboard 13.78% 13.36% 13.39% 13.96% 384.69% 68.13% North Eastern Suburbs 12.00% 10.33% 8.52% 6.77% 422.35% 60.59% Southern Peninsula 14.31% 14.42% 13.36% 12.15% 486.55% 73.25% Hottentots Holland 12.06% 12.41% 12.80% 12.81% 374.48% 56.53% City Bowl 22.57% 22.17% 21.75% 21.07% 670.67% 114.23% Atlantic Seaboard 24.12% 28.01% 30.14% 29.93% 890.36% 143.07% City Eastern Suburbs 17.74% 16.96% 15.76% 13.53% 569.43% 92.60% Southern Suburbs 14.29% 14.04% 14.30% 14.72% 539.15% 84.77% Cape Flats 10.81% 11.43% 12.04% 12.53% 418.05% 56.61% NOTES: AREA COMPOSITION OF THE CITY OF CAPE TOWN SUB-REGIONAL HOUSE PRICE INDICES

Main Areas Included in Each Sub-Regional House Price Index Former Atlantis-Mamre Elsies River-Blue Bellville-Parow Blouberg- Durbanville- Southern - Townships Downs-Macassar and Surrounds Milnerton- Kraaifontein- Peninsula Strand-Gordons Brackenfell Bay

Guguletu Atlantis Bellville Blouberg Brackenfell Gordons Bay Mamre Blackheath Goodwood Melkbosstrand Durbanville Sir Lowrys Pass Langa Blue Downs Milnerton Kraaifontein Somerset West Nyanga Delft Parow Noordhoek Strand Scarborough Elsies River Simon's Town Macassar Matroosfontein

City Bowl Atlantic Near Eastern Southern Cape Flats City of Cape

Seaboard Suburbs Suburbs Town Metro House Price Index

Roll-up of all City of Cape Town Foreshore Bantry Bay Rugby Bishopscourt Buckingham sub-regions V & A Waterfront Lagoon Beach Steenberg Golf EstateWetton Clifton Kensington Silwersteen Estate East Maitland Claremont Ottery East Cape Town City CentreBakoven Salt River Newlands Lansdowne Gardens Fresnaye Woodstock Silvertree Estate Southfield Maitland Garden VillageTokai Heathfield Devil`s Peak Estate Green Point Oude Molen Village Rondebosch Retreat Pinelands Lavender Hill Windermere Mowbray Plumstead Schotschekloof Westlake Elfindale Wynberg Nerissa Estate Observatory Ottery Ferness Kenilworth Coniston Park Royal Cape Otyhouse Estate Diep River Edward Rosebank Crawford Kirstenhof Sunlands Dreyersdal Yorkshire Estate Dennendal Pinati Forest Glade Glen Valley Constantia Romp Vlei Belthorn Estate Fairways Brooklyn Romp Vallei Glen View Penlyn Estate Eden Klein Frere Estate Turf Hall Turf Hall Estate Steenberg Sheraton Park Cafda Village Seawinds Athlone Athlone Mitchells Plain Philippi Guguletu Khayelitsha Langa Nyanga