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Drought sucks life from prices

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House price growth dries in some parts of Cape Town, Western Cape

Over the past few months the jury has been out over whether the drought was to blame for the decline in house price growth in Cape Town, and the general conclusion has always been that it was too soon to tell.

The first few months of this year were to be integral in answering this question. Now that this time has passed, the deduction is that the drought has had an impact on the dropping rate of price inflation, but is not the primary contributor.

Economists maintain the declining increases are still largely due normalising the inflation rate which has seen Cape Town and the Western Cape massively outperforming the rest of the country over the past decade.

Read: Durban and KZN have taken lead in home price growth

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FNB’s house price indices for the city’s sub-regions from January to March this year show most are experiencing slower year-on-year growth, with the most expensive areas seeing it even more.

In the first quarter of this year, the city’s year-on-year house price growth rate was still a strong 10%, though the rate represents the seventh consecutive quarter of slowing, down from a 10-year revised high of 15.6% in the second quarter of 2016.

Of the 12 sub-regions in the Cape Town metro, eight saw declines in their growth rates, with the slowest being the Atlantic Seaboard, which is the city’s most expensive area.

FNB property economist John Loos says: “The Atlantic Seaboard has seen its average house price growth slow the most sharply off the highest base, from a revised multi-year high of 27.5% year-on-year in the final quarter of 2016 to 2.3% by the first quarter of 2018.

“This does not surprise us, as this sub-region has experienced the most rapid cumulative growth of all the sub-regions over the past five years, to the tune of 111%.”

The other areas experiencing a slowing of price growth in Q1 of 2018 compared to Q4 of 2017 are:

* City Bowl: 10% – down from 11.5%, 5-year growth: 79.15%, 15-year growth: 479.33%.
* Southern suburbs: 8.4% – down from 10.1%, 5-year growth: 81.52%,15-year growth: 458.6%.
* Atlantis – Mamre: 13.3% – down from 17.6%, 5-year growth: 83.08%, 15-year growth: 575.53%.
* Bellville and surrounds: 10.8% – down from 11.4%, 5-year growth: 61.31%, 15-year growth: 369.26%.
* Western Seaboard: 14.4% – down from 14.7%, 5-year growth: 77.67%, 15-year growth: 377.94%.
* Southern Peninsula: 10.1% – down from 10.2%, 5-year growth: 74.42%, 15-year growth: 433.55%.
* City Eastern Suburbs: 13.4% – down from 14.7%, 5-year growth: 101.98%, 15-year growth: 557.73%

The four sub-regions of Cape Town still recording growth rate increases, according to FNB’s figures, are:

* Mitchells Plain – Eerste Rivier: 25% – up from 23.7%, 5-year growth: 79.45%, 15-year growth: 630.28%, 
* North Eastern Suburbs: 10.1% – up from 9.8%, 5-year growth: 68.25%, 15-year growth: 426.35%.
* Hottentots Holland: 11.4% – up from 10.5%, 5-year growth: 60.53%, 15-year growth: 339.40%.
* Cape Flats: 11.6% – up from 11.4%, 5-year growth: 61.50%, 15-year growth: 409.03%.

Loos says: “Questions continue to be asked about whether the drought has taken its toll on the housing market in Cape Town. We believe it must have had some impact, via its negative impact on the Western Cape economy, and on sentiment within and towards the region. However, we still view that the slowing price growth was overdue, and more due to natural market causes in response to prior years of significant home affordability deterioration.”

Should drought conditions deteriorate further, Loos says at some point they may become recessionary for the Western Cape economy, “and could have a significant impact on the region’s housing market”.

This month and next will “quite possibly” give clearer indication of where the Cape Town residential property market is heading, says Rowan Alexander, director of Alexander Swart Property.

“Encouraging” property sales figures were seen by some of the city’s bigger agencies in December, January and February, which many ascribe to the increase in optimism following political changes. But in March these figures slowed and declined more in April.

“This may be due to holidays. If, however, there is now an increase in uncertainty in the market and a further tightening of household budgets, the May figures will probably indicate the trend for the rest of the year.”

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