Best SA city for property growth

Cape Town is showing much stronger growth than all the other metros, according to Lightstone, which provides information, valuations and market intelligence on all properties in South Africa. However, the Knight Frank Global Residential Cities Index claims that Durban has beaten Cape Town and Johannesburg when it comes to property price increases.

While Lightstone and Knight Frank’s data clash, it has to be said that these property overviews survey property price growth over different times. Lightstone, which just survey’s the local South African market, said the City of Cape Town’s residential property market saw an increase of 12.3% in total value transacting from 2015 to 2016.

Meanwhile, Knight Frank’s Global House Price index, which surveyed 165 cities, shows that residential property prices in Durban, which obtained the 14^th spot on the index, increased on average by 11.6% between the fourth quarter of 2014 and the fourth quarter of 2015. It added that Cape Town, which came 33^rd on the index, did second best among South African cities with an average property price increase of 8.6%. Finally, Johannesburg came in at number 52 with an average price increase of just 6%.

Lightstone said Cape Town’s growth is supported partly by Gauteng homeowners increasingly choosing the Western Cape (and KwaZulu-Natal, where the eThekwini market is similarly stable) when buying outside their province with the intention to eventually relocate. “We’ve witnessed a steady increase in ‘semigration’ over the last few years,” said Paul-Roux de Kock, analytics director for Lightstone.

According to Lightstone, 50% of residential properties are located in the Western Cape and Gauteng, accounting for more than two-thirds of the total residential-market value. Sandton and Parkmore in Johannesburg, Green Point and Rondebosch in Cape Town, and Rua Vista and Monument Park in Tshwane – as well as La Lucia and Mount Edgecome in eThekwini in KwaZulu-Natal – were among the high value suburbs with strong capital growth last year.

Estate living

According to De Kock of Lightstone, estate living is fast becoming a preference among South Africans because of the associated security and lifestyle convenience aspects. Another advantage to estate living is that the price of estate homes aren’t as sensitive to market fluctuations. “Although luxury-market buyers are under pressure, the estate-housing market in general doesn’t dip as low or peak as high as the rest of the luxury market. We therefore expect it to outperform the luxury market during the current downturn,” De Kock said.

Over 50% of estates are located in Gauteng, and a further 25% in the Western Cape. The average price of an estate home in South Africa is R2 million, compared to the national average of R700, 000 for a home.

Global performance

So how did Africa do when compared to the rest of the world? Knight Frank’s index showed that the Middle East saw the best house price growth with 12.4%, followed by Africa (8.8%) Australasia (6.7%), North America (5.4%), Asia Pacific (3.7%), Latin America (3.2%) and Europe at 2.9%. Russia was at the bottom of the pile with just 0.1% growth.

The future

Homeowners may have to contend with a deceleration in property price growth this year because the honeymoon period of property price growth appears to be over. The total value of sales in the South African housing market has been steadily increasing with an 8.3% increase in the value of residential-property transactions from 2014 to 2015 said Lightstone. This is despite the weakening economy and an aggressive upward interest-rate cycle.

However, 2016 is set not to replicate this trend. Lightstone forecasts that for 2016 nominal house-price inflation will top out at around 3.5%, resulting in real deflation of home values as the Reserve Bank battles to keep the consumer price index (CPI) within the 6% upper band.

“If we see a positive turnaround in the economy, the best case scenario is that the drop will be subdued and the year will end off at around 4.6%. If we have to weather any more major economic storms, however, house-price growth could drop to 2.5% or even lower,” said Lightstone.