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We take a look at the property market in South Africa with a particular focus on the property market in the Western Cape and in particular Cape Town. The growth in rentals paid in the Western Cape is far outstripping that of other provinces in South Africa, and with punters, investors and individuals all looking to get in on the act, the question is whether this is creating a property bubble?
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So thinking of buying a new car in 2019? Think again.
The implication of a property bubble in the Western Cape is far reaching, if there is a bubble. But we are concerned that it certainly looks like there is a bubble developing. And with property agents, investors, individuals all looking to get in on the Cape Town property market, to charge excessive rents, which so far clients have been willing to pay, one has to wonder if the demand is pushing up prices to unsustainable levels? And whether the rent asked for properties in the City of Cape Town will eventually be to much for renters, who will start going elsewhere and this could lead to this inflated market crashing down as those who bought overpriced properties in the City (looking to make money of rental income) start to feel the pinch of rent not covering their bonds anymore, which will force some to sell and drive down prices as everyone heads for the exit in the City of Cape Town property market.
This is all hypothetical right now of course, but sings are there. And we will take a look at a few of them below.
This is all hypothetical right now of course, but sings are there. And we will take a look at a few of them below.
The chart above shows the year on year growth rates in rent paid for various dwelling types (houses, flats and townhouses) per province. And as the graphic shows the growth in property rent in the Western Cape has far outstripped that of the other big economic provinces in South Africa as well as the growth in property rents for South Africa as a whole (as measured by All Urban Areas of South Africa). So box number 1 is a tick. Rent seeked by property owners in Western Cape is growing faster than the national average and other big economic hubs in South Africa.
According to FNB's property barometer, cumulative house price growth over the last 5 years for the City of Cape Town totaled 78.2%. See the image below:
According to FNB's property barometer, cumulative house price growth over the last 5 years for the City of Cape Town totaled 78.2%. See the image below:
Some of the regions within the Western Cape showed cumulative growth of over 100% over the 5 year period ending 2nd quarter 2018. The quarter before this (quarter 1, 2018) FNB published cumulative house price growth for the Gauteng region, the economic hub of South Africa. The City of Johannesburg only showed 23.19% cumulative growth over the 5 year period (see image below), far less than that measured in the City of Cape Town.
So even with Gauteng being the most populis province in South Africa, and having the smallest surface area and therefore the highest population density of any province in South Africa, its property prices grew FAR less than that of the Western Cape. The national average (all provinces and regions in South Africa) recorded cumulative growth of 36.6% as at end of 2017. Again it shows just how fast house prices in the Western Cape has been growing. So box number 2 tick. Property prices in the Western Cape growing a lot faster than the other provinces in South Africa.
So what is the average house price looking like in the various regions of South Africa? According to the FNB property barometer reports in the Q1:2018 the average house per region was as follows:
If all of the above does not point to property bubble developing, or already being in place we are not sure what else is needed to warn potential buyers of property in the Western Cape and the City of Cape Town that the property prices in the region might be heavily inflated and could come down significantly in years to come. So think twice before splashing out an a property in the Western Cape, especially if its a second property that will be used to generate rental income or buying a second property with the hopes of selling it at a higher price for capital growth in a few years.
So what is the average house price looking like in the various regions of South Africa? According to the FNB property barometer reports in the Q1:2018 the average house per region was as follows:
- Western Cape: R1 460 223
- Gauteng: R1 083 039
- KwaZulu-Natal: R1 115 012
- Eastern Cape: R 829 000
- Rest of the Provinces: R 821 147
If all of the above does not point to property bubble developing, or already being in place we are not sure what else is needed to warn potential buyers of property in the Western Cape and the City of Cape Town that the property prices in the region might be heavily inflated and could come down significantly in years to come. So think twice before splashing out an a property in the Western Cape, especially if its a second property that will be used to generate rental income or buying a second property with the hopes of selling it at a higher price for capital growth in a few years.