Gauteng sub-regional house price indices show mediocrity in terms of house price performance compared to Cape Town
First National Bank’s (FNB) first quarter 2017 Gauteng Sub-Regional House Price Indices show mediocrity in terms of house price performance to be widespread.
And the bank says this is a very different situation to its City of Cape Town Sub-Regional Indices which show a very strong market on the other side of the country.
FNB says the advantage of this mediocrity, however, is that its estate agents surveys continue to show very strong levels of first time buying in Gauteng compared to the Western Cape. For Gauteng’s economy, home affordability for first time buyers is important, as it is these young labour market and housing market entrants that provide the skills base for region’s economy.
Using Deeds Office Data, FNB has recently constructed a new set of house price indices for key sub-regions within the province of Gauteng, the aim being to evaluate this regional housing market’s performance in more detail.
“We have then rolled up this set of sub-regions into overall house price indices for each major metropolitan council region as well as for each district municipal region in those areas outside of Gauteng’s three metros.
Unlike the booming City of Cape Town Metro House Price Index, Gauteng’s three Major Metro House Price Indices are closely grouped together in what can only be termed “mediocrity” at best.
In the first quarter of 2017, the City of Tshwane’s estimated average house price growth rate was a lowly 4.21%, only marginally better than Ekurhuleni’s 3.92% and Joburg’s 3.41% year-on-year.
In FNB’s last Property Barometer report, the bank focused on the City of Cape Town and its booming high end residential markets in and around the Cape Peninsula. Cape Town has become about lifestyle for the affluent, has a relatively high percentage of foreign home buyers by South African standards, and has done very well in attracting affluent repeat home buyers from other South African regions who are often looking for that lifestyle and can afford it.
Gauteng, in FNB’s view, is a completely different animal to Cape Town. It is the largest regional economy in the country, and is where many young professionals relocate to launch their careers. Although Gauteng has the highest per capita income of any province in the country, its price levels are significantly lower on average than Cape Town, due to it being a landlocked province with a significantly better land supply for new residential development than Cape Town.
Gauteng is not so much a lifestyle region but more a “functional working region”. Its residential market, the bank believes, tracks the national economy to a greater extent than Cape Town with its greater portion of foreign an affluent retiree buyers, and the national economy has been very weak in recent years.
These perceptions about the differences between Cape Town and Gauteng, FNB believes, are reflected in certain of its surveys and analysis. With regards to new housing market entrants, the FNB Estate Agent Survey in recent times points to a massive difference between first time buyer levels in Gauteng’s major cities as opposed to those in the City of Cape Town.
Whereas the sample of agents surveyed during the two summer 2016/17 quarters estimated 1st time buying in Cape Town to be a lowly 8% of total home buying, Joburg and Tshwane’s sample of agents surveyed estimated that 1st time home buyers amounted to a far higher 27% and 21% of total home buyers respectively.
With little in the way of fireworks in the Gauteng housing markets in recent years, we suspect that this high estimate of 1st time buying not only reflects a huge desire of young working people to be in the region, but also reflects far better home affordability than in the booming Cape Town market.
But where Gauteng fares less well is when it comes to what the bank believe to be more affluent repeat home buyers, at a more advanced stage of their careers or retiring, who want to relocate to another province. In 2015, FNB’s last annual estimate, the Western Cape Province experienced an estimated net inflow of repeat home buyers (“net = those arriving minus those leaving the province) to the tune of +12.2% of that province’s total repeat home buying.
By comparison, Gauteng had a net outflow of repeat home buyers to the tune of -3.2% of its own repeat home buying levels.
Given what the bank mentioned about more financially constrained first time buyers moving in larger numbers into Gauteng’s, and especially Joburg’s” housing market, while a greater portion of more affluent repeat home buyers moves Cape Town way on a “net” basis, one could perhaps expect Gauteng’s more affordable residential areas to have been more “vibrant” in recent years.
A view of FNB new regional house price indices for the City of Joburg’s main sub-regions over the past five years indeed appears reflective of a market with strong new entrant buying and no fireworks on the affluent side.
Whereas in the City of Cape Town it has been the most affluent/highest priced regions that have outperformed the rest, in Joburg, the high priced Sandton region is very much in the “middle of the pack”, having inflated only 22.66% over the five years from early-2012 to early-2017.
Granted, in Gauteng’s mediocre performing market there is little that really stands out. However, the bank notice that over these past five years it is the lower priced Diepkloof-Soweto-Meadowlands-Pimville region that has seen the fastest estimated cumulative house price growth to the tune of 37.35%.
While the “former township” regions can have certain distortions in their price inflation rates, caused by some disposal of municipal rental stock onto the market in earlier years at below market value, or subsidized homes having earlier being registered at values not market related, FNB says it would still believe this superior Soweto region house price performance over the past five years to be reflective of what has been taking place in that region.
This “former township” region has received major infrastructure and retail upgrades over the years, and has become a more attractive place to live in a Joburg market high on new housing market entrants searching for affordability.
However, it must be stressed that all regions in Joburg have performed mediocrely at best in terms of house price growth over the past five years, in a market that, unlike Cape Town, has been largely free of “over-exuberance.
And looking at the first quarter 2017 year-on-year house price growth rates, for the time being the Diekloof-Soweto-Meadowlands-Pimville region has gone “off the boil” with slightly negative year-on-year house price growth of -0.41%.FNB first quarter 2017 Gauteng Sub-Regional House Price Indices show mediocrity in terms of house price performance to be widespread. This is a very different situation to our City of Cape Town Sub-Regional Indices which show a very strong market on the other side of the country. The advantage of this mediocrity, however, is that our estate agents surveys continue to show very strong levels of 1st time buying in Gauteng compared to the Western Cape. For Gauteng’s economy, home affordability for first time buyers is important, as it is these young labour market and housing market entrants that provide the skills base for region’s economy.
Whereas the City of Cape Town’s high flying residential market has seen the high priced end far outperform lesser priced areas, Gauteng is almost something of the opposite. Most residential regions in Gauteng have been mediocre in recent years, with performance differentials not huge. But zooming in on the City of Joburg, the city estimated to have by far the highest percentage of first time buyers, a group searching for affordability, it is perhaps not surprising to see some outperformance in terms of house price growth over the past 5 years in the more affordable region of Soweto “and surroundings”.