PROPERTY BAROMETER FNB City of Cape Town House Price Indices It’s near to Table mountain where house price growth has been most impressive 24 March 2017 In recent years, the Western Cape region has significantly outperformed the rest of South Africa when it comes to the strength of its housing market and average house price growth. MARKET ANALYTICS AND The City of Cape Town Metro has been a key driver of the region’s overall SCENARIO FORECASTING UNIT house price growth. But where has the strongest house price growth been within the City of Cape Town? Our new set of City of Cape Town Sub-Regional House Price Indices point to top performance generally being near to Table Mountain, JOHN LOOS: HOUSEHOLD AND PROPERTY although other regions more removed have not necessarily done badly SECTOR STRATEGIST either. 087-328 0151 KEY POINTS [email protected] Using Deeds Office Data, we have recently constructed a new set of house price indices for key sub-regions within the City of Cape Town Metro, the aim being to better evaluate this regional housing market’s stellar LIZE ERASMUS: performance in recent years. STATISTICIAN 087-335 6664 We have then rolled up this set of sub-regions into an overall City of Cape th lize.erasmus@@fnb.co.za Town Metro House Price Index. In the 4 quarter of 2016, the City of Cape Town’s estimated average house price growth rate remained in double-digit territory to the tune of 13.2% year-on-year. On a quarter-on-quarter basis, the rate was 3%. The information in this publication is derived from sources which are regarded While still at impressive levels, this year-on-year price growth rate as accurate and reliable, is of a general represents a slight slowing from a 10-year high of 13.4% recorded in the 2 nd nature only, does not constitute advice quarter of 2016. 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. First National Bank – a division of FirstRand Bank Limited. An Authorised Financial Services provider. Reg No. 1929/001225/06 THE STRONGEST PERFORMANCE SEEMS TO HAVE BEEN BROADLY LINKED TO PROXIMITY TO THE MOUNTAIN 4TH QUARTER 2016 CAPE TOWN SUB-REGIONAL HOUSE PRICE GROWTH RATES The FNB City of Cape Town Sub-Regional House Price Indices estimate the strongest year—on-year house price growth to have taken place on the Atlantic Seaboard (see notes at the end for main areas included in the sub- regional indices), which stretches from Green Point through Clifton and all the way to Hout Bay, and has for many years already been the priciest part of Cape Town. The Atlantic Seaboard House Price Index grew by a massive 22.9% year-on-year in the 4 th quarter of 2016, and at that stage was still on an accelerating growth path. Not far behind was the City Bowl region, with a 4 th quarter year-on-year house price growth rate of 20.1%. In 3 rd place was what we call the “City Near Eastern Suburbs”, which includes the likes of Woodstock and Salt River, and stretches east as far as Pinelands. This index showed 15.8% year-on-year growth. The 4 th strongest average house price growth rate was in the area we call “Southern Peninsula”, which includes Fishoek, Kommetjie and Simons Town. It grew by 14.7% year-on-year. The key Southern Suburbs region has seen some slowing in its average house price growth to 11.6%, thus no longer one of the strongest growth regions although still impressive. Further away from the Cape Peninsula’s mountainous areas, the growth has been a little slower, but nevertheless impressive from a national perspective. One region that has become more popular in recent years as a perhaps more affordable (or less in-affordable) commuter region is Blouberg-Milnerton-Melkbosstrand, and its year-on- year house price inflation was still a respectable 12.5%. LONGER TERM PRICE GROWTH TRENDS – 5-YEAR CUMULATIVE GROWTH RATES A look at the longer term big picture reveals a relative performance similar pattern to the 4 th quarter 2016 “snapshot”. We calculate a 5-year cumulative house price growth rate by sub-region, over the period 1 st quarter 2012 to 4 th quarter 2016. 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 104.4% over the period, followed by the City Bowl with 89.9%, City Near Eastern Suburbs with 72.7%, Southern Suburbs with 63.6%, and Southern Peninsula with 61.7%. Outside of these 5, the next best thing was Blouberg-Milnerton-Melkbosstrand regions with cumulative price growth of 53%. WHAT ARE THESE LONGER RUN TRENDS REFLECTIVE OF, AND WHAT ARE THE IMPLICATIONS? So why have the already-most expensive suburbs in Cape Town shown the strongest house price growth even off their high base? We believe it to be the combination of a number of factors. Importantly, as far as cities go, the upmarket City Bowl and Atlantic Seaboard have natural beauty and outdoor lifestyle, facilitated by the recreational potential of Table Mountain and the other mountainous areas, and by the sea. The major upgrade to the CBD (Central Business District) over the years, and the addition of man-made attractions such as the V&A Waterfront, have added greatly to the City Bowl and surrounding areas having become fashionable for the affluent. Many wealthy residential buyers come from inland regions such as Gauteng, while the City Bowl and Atlantic Seaboard are able to attract a greater percentage of foreign buyers too, relative to the rest of Cape Town and relative to other SA cities, it would appear. The outperformance of the Atlantic Seaboard and City Bowl is reflective of a craving of the wealthy for quality city lifestyle. On the supply-side, Table Mountain creates a major land restriction for new property development. Then add to this Cape Town’s growing traffic congestion challenge, and the fact that some of the city’s prime business and employment nodes, most notably the CBD (Central Business District) and Claremont, are in close proximity to the mountain. Access to especially the CBD is limited by the topography, and as time goes by the city’s inhabitants increasingly plan their life, including where they live, around traffic congestion. This should imply a longer term shift in a portion of residential demand towards areas closer in proximity to the Cape Peninsula, and we believe it has. Finally, there is probably a little “over-exuberance” in especially the City Bowl and Atlantic Seaboard sub-regions, something that can creep into a market after some years of strong house price growth performance, causing investors to buy based on recent growth, expecting it to continue into the future. This is a customary human characteristic in strong markets, which can cause market “overshoots” from time to time. While these areas around the mountain, especially the City Bowl and Atlantic Seaboard, are currently experiencing something of a “golden era”, ultimately their lack of supply and exorbitant house price levels (by SA standards) can create problems for them in terms of making it tough for certain very important professionals, such as teachers, nurses and academics, to live or work in such areas. That can ultimately pose a threat to the standard of certain important services in such areas. The answer is twofold. Firstly, it is important for Cape Town to achieve a high quality public transport solution so as to ease its mounting traffic congestion issue. But secondly, shifting a greater portion of economic activity to more de-centralised business nodes in the likes of the Northern Suburbs as well as to previously neglected areas such as the Cape Flats, is probably also desirable. CITY OF CAPE TOWN SUB-REGIONAL HOUSE PRICE INDICES - AVERAGE GROWTH RATES Quarterly year-on-year percentage change Cumulative 15- Cumulative 5- Q1-2016 Q2-2016 Q3-2016 Q4-2016 year growth year growth Atlantis-Mamre 2.5% -0.8% -4.0% -5.4% 525.6% 37.1% Elsies River-Delft-Blue Downs 8.3% 10.3% 11.9% 13.4% 507.7% 48.8% Bellville, Parow and Surrounds 10.7% 10.1% 8.7% 7.4% 307.2% 40.8% Blouberg- Milnerton-Melkbosstrand 12.4% 12.6% 12.6% 12.5% 318.6% 53.0% Durbanville-Kraaifontein-Brackenfell 12.7% 12.5% 11.9% 11.4% 393.5% 55.0% Southern Peninsula 11.8% 12.2% 13.7% 14.7% 411.2% 61.7% Somerset West-Strand-Gordons Bay 7.7% 8.3% 9.0% 9.3% 300.3% 39.2% City Bowl 20.7% 21.2% 20.9% 20.1% 546.6% 89.9% Atlantic Seaboard 18.6% 20.7% 22.2% 22.9% 683.9% 104.4% City Near Eastern Suburbs 12.3% 13.3% 14.4% 15.8% 432.4% 72.7% Southern Suburbs 14.0% 13.6% 12.6% 11.6% 433.8% 63.6% Cape Flats 8.9% 8.8% 9.1% 9.9% 386.6% 44.3% City of Cape Town Overall Index 13.2% 13.4% 13.4% 13.2% 395.4% 59.9% 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 Somerset West- Townships Downs-Macassar and Surrounds Milnerton- Kraaifontein- Peninsula Strand-Gordons Melkbosstrand Brackenfell Bay Guguletu Atlantis Belhar Bellville Blouberg Brackenfell Cape Point Gordons Bay Khayelitsha Mamre Blackheath Goodwood Melkbosstrand Durbanville Fish Hoek Sir Lowrys Pass Langa Blue Downs Kuils River Milnerton Kraaifontein Kommetjie Somerset West Nyanga Delft Parow Noordhoek Strand Eerste River Scarborough