National house price growth eased to 5% year-on-year in March, down from 5.1% the previous month, according to Standard Bank’s measure. On a quarterly basis, house price growth slowed to 5.1% in the first three months of 2018, compared to the final quarter of last year when house price inflation averaged 5.4%.
“It’s been a somewhat slow start to the year with both building and purchasing activity continuing its relatively subdued trajectory seen last year,” said Siphamandla Mkhwanazi, Standard Bank’s property economist.
“The severe drought experienced in the country may have had some impact on the property markets of the Western Cape and parts of the Eastern Cape, thanks to the effect this had on both consumer income and sentiment, as well as on the construction of new residential units.”
The Western, Eastern and Northern Cape were declared national disaster zones in February due to the severe drought that has strained water supplies to towns and cities across the three provinces, including Cape Town which is home to almost 4-million citizens. Despite this, Cape Town has set South African records for both the highest-ever sale price for a residential home - R290m for a house in Bantry Bay achieved in 2016 – as well as the highest-ever rental price - R450,000 a month for an estate in Constantia last year.
“While the Western Cape, and Cape Town in particular, continue to experience growth in property prices, the data show that momentum has slowed substantially over the past few months,” said Mkhwanazi.
“In contrast, some of the smaller and less fashionable provinces like the Northern Cape and Free State are starting to see a strong pickup in house price inflation although on an overall basis the smaller provinces remain under pressure with growth averaging just 2.3% in the first quarter of 2018.”
On a regional basis, KwaZulu-Natal was the best performing province showing year-on-year growth of 6.9% in March (up from 6.5% in February) while South Africa’s economic heartland of Gauteng saw 5.9% growth (versus 5.5% the previous month). Both the Western and Eastern Cape property markets were revealed to be under pressure with each province showing identical growth of 3.8% year-on-year in March. This was down from 5.1% growth in the Western Cape and 4.5% for the Eastern Cape recorded in February. Growth in the Northern Cape reached 6.3% followed by the Free State (5.1%), Mpumalanga (-0.8%); Limpopo (-0.2%); and North West (0.3%) in the first quarter of 2018.
Nevertheless, the Western Cape remains the most expensive province for residential homes with the median house price estimated at R1,340,769; followed by KwaZulu-Natal at R970,328 ; Gauteng R918,294 ; Northern Cape R868,962; Mpumalanga R796,789; Eastern Cape R795,258; Limpopo R777,275; Free State R729,977and North West R720,663.
“Despite the slow start to the year, we expect house prices to finish 2018 somewhat higher than inflation,” said Mkhwanazi. “Buying activity is likely to benefit modestly from resurgent business and consumer sentiment which, along with the recent interest rate reduction, should support demand for and supply of mortgages and, ultimately, property prices.”
Although annual economic growth in South Africa has not exceeded 2% since 2013, the election of President Cyril Ramaphosa has engendered a newfound optimism in the country, with business confidence rallying to a three-year high in March. The Reserve Bank lowered its benchmark rate by 25 basis points to a two-year low of 6.5% in March and also raised its economic growth forecast for the year to 1.7% from a previous estimate of 1.4%.
The central bank expects inflation to average 4.9% in 2018 and remain within its target band of 3% to 6% until at least the end of 2020.
