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Friday Aug 10, 2018

Cape Town house price slowdown broadens

Cape Town's estimated average house price declined to 8.7% year-on-year in the second quarter of this year, according to a FNB report.

This represented the eighth consecutive quarter of house price growth slowing from the 10-year revised high of 15.4% recorded in the second quarter of 2016.

FNB said decline broadened to nine of the 12 regions from eight in the first quarter.

John Loos, a household and property sector analyst at FNB, said the City of Cape Town's overall housing market continued to cool.

Loos said the recent drought might have contributed to the decline market through its negative impact on the Western Cape economy and on sentiment within and towards the region.

Loos said the good recent rains, which has alleviated the region's water shortage, may not reverse the slowdown in the near term as growth had for some years been driven by significantly deteriorating housing affordability.

He said slower house price growth for a considerable period was due until affordability had meaningfully improved.

The Atlantic Seaboard, the most expensive sub region in the city, experienced the steepest decline in growth with the average house price slowing to 1.9% in the quarter from a revised multi-year high of 27.7% in the final quarter of 2016, and now had the slowest price growth of all of Cape Town's regions.

However, Loos said this was expected because this sub region had until recently experienced the most rapid growth of all the sub regions.

Loos added there was further slowing in house price growth in the City Bowl and two of the three major sub regions close to the City Bowl.

He said these sub regions near to the city and the mountain had shown some of the strongest house price inflation of all of the Cape Town sub regions over the past five years.

Loos said this prior deterioration in home affordability appeared to have led in recent quarters to slowing demand and therefore also slowing price growth

Cape Town's eastern suburbs, the Cape Flats and Hottentots Holland were the only regions that experienced year-on-year average house price growth in the second quarter.

Loos said the near eastern suburbs sub region continued to “defy gravity” after experiencing slowing house price growth in 2016. It had experienced a slight resumption in average house price growth to 17.6% in the second quarter of this year from 16% in the same quarter last year, he said.

Loos attributed this to close proximity to the City Bowl and the fact it was a key place of employment, which was still a priority for many households because of traffic congestion.

He said house price growth held up relatively well and even accelerated last year in Cape Town's more affordable suburban areas further away from Table Mountain.

Loos attributed this to the prime regions in and around the Peninsula becoming far less affordable after massive price growth over about five years, which forced a portion of the demand to look north for more affordable housing opportunities, resulting in a subsequent significant deterioration in affordability in the northern suburbs.

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