WILL THE CAPE HOUSING RALLY LAST?

Western Cape property prices are streaking ahead of those in other provinces. Could affordability issues reverse the trend?

The housing market seems to be buckling under the strain of aggressive interest rate hikes (and fears of more to come), along with relentless load-shedding and a looming recession.

Latest deeds office figures show the number of home loan registrations across South Africa dropped 14% year on year in the six months to endMarch. In Gauteng and KwaZulu-Natal the drop was 15% and 19% respectively.

However, the slowdown of the postpandemic uptick in housing activity is far less noticeable in the Western Cape, where bond registration volumes are down only 8% over the same period.

The province’s housing market has been supported in no small part by a three-year semigration wave. In fact, last year 59% of all housing sales in the Western Cape went to buyers from Gauteng, according to data analytics firm Lightstone.

It’s led to a mini-boom in property values. Data from mortgage originator BetterBond shows that Western Cape house prices are still rising nearly three times faster than the rest of the country

10% in the year to April vs 3.7% for South Africa as a whole (see graph).

That brings the average price in the province to R1.92m double the R963,000 buyers in the Free State (the cheapest province) are forking out, and about a third higher than South Africa’s average R1.45m (see graph).

The question is whether the rising gap between Western Cape house prices and the rest of the country will put a brake on semigration.

It doesn’t appear so not yet anyway. BetterBond CEO Carl Coetzee believes buyers will continue to pay a premium, given the many benefits offered by the Western Cape.

That’s especially true for higherincome buyers who tend to be less sensitive to interest rate hikes and less dependent on mortgage finance.

Besides offering an “enviable” outdoor lifestyle in scenic surrounds, the province’s reputation for well run local governments is likely to continue boosting semigrant numbers, says Coetzee.

Load-shedding, he adds, is playing a role too, given the provincial government’s commitment to incorporate alternative energy sources into the grid.

Coetzee argues that there could even be renewed buyer activity in the Western Cape over the next 12 months if interest rates start to peak.

Pam Golding Property Group CEO Andrew Golding has a similar view. The group continues to see “significant” buyer interest in the greater Western Cape market, he says.

“So the semigration trend persists, even though we are starting to see the seasonal reduction in volumes customary in the Cape in the winter,” he says.

International buyers, especially at the top end of the market, are also featuring prominently again, Golding notes.

Though greater Cape Town’s price gap is widening relative to the rest of the country, he says savvy buyers are finding value in what were previously less fashionable areas. These include smaller towns and coastal hamlets such as Worcester, Langebaan, Paternoster, Greyton and Riebeek Kasteel.

Golding concedes that the Cape isn’t immune to rising rates, elevated costs of living and a sluggish economy. However, he says housing markets are heavily influenced by supply and demand economics.

“As long as demand outstrips supply, which is the case in most areas of the Cape, there will continue to be a price differential compared with other provinces,” he argues.

Even though Joburg, for instance, now offers “exceptional” value for money, Golding isn’t seeing any reverse flow of money back into the metro.

He believes the inland province “is unlikely to fully benefit from its value proposition if security is considered an issue and local government continues to fail in terms of service delivery”.

Seeff Property Group chair Samuel Seeff says the only factor that may put a dampener on the relocation drive to the Cape is if would-be semigrants battle to sell their houses elsewhere.

Once people have decided to semigrate they are prepared to either compromise on square meterage or pay more for a similar sized property, he notes. In Cape Town, this premium is typically about 20%-30% in the R2.5mR6m bracket and at least 40% in the R10m-plus segment, depending on the neighbourhood.

Seeff dismisses talk of affordability issues potentially placing a brake on semigration. In fact, he says unless other provinces start to improve municipal service delivery and upkeep of critical infrastructure, the trend will simply continue to gather pace.