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Middle market in a pinch

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The drop in prices in the luxury market is now spilling over to properties in the next value category

Property prices in Cape Town’s more expensive areas are still flailing under the general economic pressure, creating opportunities for savvy investors, estate agents say.

FNB’s latest Property Barometer indicates the Atlantic seaboard and southern suburbs are falling deeper into contraction and this deflation is now spilling over into the middle-priced areas.

Lower-priced areas, however, remain resilient. Using deeds data to compile house price indices for the main sub-regions in the City of Cape Town, FNB analyst Siphamandla Mkhwanazi says average estimated house-price growth in the city “softened” further in Q2 2019 to just 0.5% year-on-year.

This is a decline from 1.8% in Q1 2019. “In real terms, average house prices have been declining for a year now. Price growth is weighed on by the intensified pressure in affluent areas, appearing to be spilling over to middle-priced areas.”

He says, overall, this marks the slowest growth rate since the end of 2009 and “comes as no surprise”, given the weak economic fundamentals and the fact that house-price growth has, for some time, outpaced income growth in the region.

But while the top end of the market often bears the brunt in a downturn with the biggest drop in sales volumes and prices, Chris Cilliers, chief executive and principal of Lew Geffen Sotheby’s International Realty, says it is also the segment that signals a positive upturn.

And renewed activity at this end of the market is an encouraging sign of investor confidence. “Serious sellers who have had their properties in the market for many months are more willing to accept this is a buyers’ market and are accepting offers they may have disregarded before. Educated and experienced buyers know the best time to buy is during a downturn and in the upmarket category.”

Cilliers says her office has seen a spike in inquiries and sales in this top end of the market over the past three months. Agreeing that house price pressure in more affluent areas has created opportunities for savvy investors, Basil Moraitis, Pam Golding Properties area manager for the Atlantic seaboard, says the seaboard is still considered a lucrative investment option.

“The buyer profile for this premium market has diversified, with many coming from Gauteng to work and live in Cape Town.” Analysing the statistics, Mkhwanazi says pressure is spilling down the price ladder and away from the mountain.

“Sub-regions in the northern suburbs, which are generally in the middle of the price spectrum, showed a sharp deceleration in house-price growth in recent quarters. For some time, these regions were perceived as offering more affordable housing as affordability deteriorated near the mountain. Prices shot up and counteracted their initial attractiveness. Unsurprisingly, as demand slowed, price growth slowed.”

He says the western seaboard sub-region slid into “mild contraction”. Bellville-Parow and surrounds, as well as Durbanville, Kraaifontein and Brackenfell sub-regions, held up “relatively better”, while the upmarket sub-regions “continue to take a hit”.

The most expensive sub-region in the City of Cape Town, the Atlantic seaboard, and the southern suburbs “slid deeper into contraction”. “The eastern suburbs (incorporating Woodstock, Maitland and Pinelands), which for some time held up better than the rest of the regions surrounding Table Mountain, declined.

“The more affordable sub-regions in the city, which incorporate township areas, are performing well above the city’s average and remain in double digits.” FNB Estate Agent Results, however, show although the local market is seeing “lukewarm activity”, levels have improved slightly since the end of last year.

Sellers are also dropping asking prices , so buyers are capitalising , primarily in the affluent segment.

Sub-region house price-growth comparisons from Q1 2019 to Q2 2019

Elsies River/Blue Downs/Macassar: 12.9% to 16.1%

Bellville/Parow/surrounds: 4.8% to 3.4%

Blouberg/Milnerton/Melkbosstrand: 1.3% to -0.3%

Durbanville/Kraaifontein/Brackenfell: 2.3% to 1.6%

Southern Peninsula: -1.9% to -3.2%

Somerset West/Strand/Gordons Bay: 3.6% to 1.6%

City Bowl: -3.6% to -5.7%

Atlantic Seaboard: -3.2% to -3.7%

Eastern Suburbs: -2.9% to -5.3%

Southern Suburbs: -2.2% to 14.9%

Cape Flats: 12.1% to 11.2%

Source: FNB Economics

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