Public Disclosure Authorized Cape Town’s Residential Property Market Public Disclosure Authorized Size, Activity, Performance Public Disclosure Authorized Funded by A deliverable of Contract 7174693 Public Disclosure Authorized Submitted to the World Bank By the Centre for Affordable Housing Finance in Africa January 2018 Acknowledgements This report was prepared by the Centre for Affordable Housing in Africa, for the World Bank as part of its technical assistance programme to the Cities Support Programme of the South African National Treasury. The project team wishes to acknowledge the assistance of City of Cape Town officials who contributed generously of their time and knowledge to enable this work. Specifically, we are grateful to the engagement of Catherine Stone (Director: Spatial planning and urban design), Claus Rabe (Metropolitan Spatial Planning), Peter Ahmad (Manager: City Growth Management), Louise Muller (Director: Valuations), Llewellyn Louw (Head: Valuations Process & Methodology) and Emeraan Ishmail (Manager: Valuations Data & Business Systems). We also wish to acknowledge Tracy Jooste (Director of Policy and Research) and Paul Whelan (Directorate of Policy and Research), both of the Western Cape Department of Human Settlements; Yasmin Coovadia, Seth Maqetuka, and David Savage of National Treasury; and Yan Zhang, Simon Walley and Qingyun Shen of the World Bank; and independent consultants, Marja Hoek-Smit and Claude Taffin who all provided valuable comments. Project Team: Kecia Rust Alfred Namponya Adelaide Steedley Kgomotso Tolamo Aqua Suliali Illana Melzer Cape Town’s Residential Property Market: January 2018 2 Cape Town’s Residential Property Market Size, Activity, Performance ACKNOWLEDGEMENTS ................................................................................................................ 2 FOREWORD ................................................................................................................................. 6 EXECUTIVE SUMMARY ................................................................................................................. 7 1 INTRODUCTION ................................................................................................................. 11 2 THE HOUSING MARKET – AN ANALYTICAL FRAMEWORK ..................................................... 12 2.1 THE HOUSING ASSET ................................................................................................................ 13 2.2 PROPERTY MARKET FILTERING ................................................................................................... 16 2.3 SEGMENTING THE HOUSING MARKET .......................................................................................... 20 3 CAPE TOWN’S RESIDENTIAL PROPERTY MARKET ................................................................. 22 3.1 MARKET SIZE AND VALUE .......................................................................................................... 22 3.2 MARKET ACTIVITY .................................................................................................................... 30 3.2.1 Supply of new housing as seen on the deeds registry ..................................................... 30 3.2.2 Resale market activity ..................................................................................................... 33 3.2.3 Lending activity ............................................................................................................... 37 3.2.4 Housing prices ................................................................................................................. 38 4 PROPERTY MARKET PERFORMANCE IN CAPE TOWN ........................................................... 40 4.1 HOUSING AFFORDABILITY AND ACCESS ........................................................................................ 43 4.2 ECONOMIC AND SPATIAL TRANSFORMATION ................................................................................. 48 4.2.1 Economic Transformation ............................................................................................... 48 4.2.2 Spatial Transformation .................................................................................................... 52 4.3 SUSTAINABLE HUMAN SETTLEMENTS ........................................................................................... 57 4.4 MARKET RESPONSIVENESS ......................................................................................................... 59 4.5 TARGETED MARKET PERFORMANCE ............................................................................................. 61 4.5.1 Voortrekker Corridor ....................................................................................................... 62 4.5.2 Metro South-East Integration Zone ................................................................................. 63 5 CAPE TOWN BY COMPARISON: HIGH LEVEL VIEW ............................................................... 64 6 BUILDING AN INCLUSIVE RESIDENTIAL PROPERTY MARKET IN CAPE TOWN ......................... 69 6.1 GROWING CAPE TOWN’S RATES BASE .......................................................................................... 70 6.2 CREATING OPPORTUNITIES FOR INCLUSIVE HOUSING AND DEALING WITH GENTRIFICATION .................... 71 6.3 UNDERSTANDING AND WORKING WITH INFORMALITY ..................................................................... 72 6.4 CONSIDERING THE DYNAMICS AND POTENTIAL OF THE RENTAL MARKET ............................................. 74 6.5 REALISING PRIORITIES WITH DATA-SUPPORTED DEVELOPMENT DECISIONS .......................................... 75 7 METHODOLOGY ................................................................................................................. 76 7.1 MARKET SIZE AND VALUE ........................................................................................................... 77 7.2 MARKET ACTIVITY .................................................................................................................... 79 7.3 MARKET PERFORMANCE ............................................................................................................ 81 Cape Town’s Residential Property Market: January 2018 3 Tables Table 1 Total Residential Properties by property type, Cape Town, 2015 .............................................................................. 26 Table 2 Total repeat transactions: all and government sponsored ........................................................................................ 35 Table 3 Churn by property type, Cape Town 2010-2015 ........................................................................................................ 36 Table 4 Cape Town population income distribution ................................................................................................................ 43 Table 5 Churn rates by market segment, Cape Town 2010-2015 ............................................................................................ 46 Table 6 Freehold Suburb Metrics, Cape Town 2012, 2015 ..................................................................................................... 54 Table 7 Sectional Title Suburb Metrics, Cape Town 2012, 2015 ............................................................................................. 54 Table 8 RDP Suburb Metrics, Cape Town 2012, 2015 ............................................................................................................. 54 Table 9 Churn rates in high performing suburbs, Cape Town 2015 ........................................................................................ 55 Table 10 Suburbs with mortgaged financed transactions under R300 000, Cape Town 2015 ................................................ 56 Table 11 Key residential market indicators: properties, transactions and bonds, all metros, 2015 ....................................... 66 Table 12 Indicators used to consider Market Size & Value ..................................................................................................... 78 Table 13 Indicators used to consider market activity ............................................................................................................. 79 Table 14 Indicators used to consider market performance .................................................................................................... 81 Figures Figure 1 The Housing Asset ..................................................................................................................................................... 14 Figure 2 Pools and flows to enable property market filtering ................................................................................................ 17 Figure 3 Blocked pools and flows undermine property market filtering ................................................................................ 18 Figure 4 A Property Ladder in Cape Town............................................................................................................................... 19 Figure 5 Distribution of residential property in Cape Town by number and value, 2015 ....................................................... 23 Figure 6 Cape Town's most and least expensive suburbs ....................................................................................................... 23 Figure 7 Distribution of residential properties by market segment, Cape Town 2015 ..........................................................