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Here’s how Cape Town property prices have exploded

Which areas have soared (while much of the rest of SA flat-lines)?

Five areas outperformed the overall average house price growth seen across the metro over the past five years:

  • The Atlantic Seaboard (from Green Point to Hout Bay),
  • City Bowl,
  • The eastern suburbs near the city (areas such as Woodstock, Salt River and Pinelands),
  • The Southern Suburbs (extending from Rondebosch to Muizenburg), and
  • Southern Peninsula (including Simon’s Town, Fish Hoek, Noordhoek).

Overall price inflation in the metro is almost exactly double the national House Price Index published monthly by the bank over the five year period. Another way of looking at this is that other areas (smaller provinces, as well as mining and holiday towns, for example) have lagged dramatically, given that this data is all rolled up into the single figure.

In Cape Town, even recent laggards such as Somerset West/Strand and Atlantis have outperformed the index (and inflation) by 10 percentage points since 2012.

With inflation (CPI, as per Statistics South Africa) for the five-year period at a quarter of a percentage point under FNB’s House Price Index, in real terms, average house prices in South Africa have been flat. Let me repeat that: average house prices in South Africa have gone nowhere since 2012.

Of course, because this is a national average, it will not apply to every size and type of home in every possible area in the country. Loos’s detailed research shows the divergent performances of sectional title vs full title house prices (the former has marginally outperformed the latter), with smaller homes (especially in sectional title schemes) outperforming larger ones.

Property prices in major metros have tended to outperform other cities and towns and those in former township areas in the metros have generally outstripped price growth in the broader metros.

However, the Western Cape and especially Cape Town has “significantly outperformed” the rest of the country, says Loos. The trend of ‘semigration’ to the Cape from (especially) Gauteng has certainly helped drive this demand. Brenthurst’s Magnus Heystek, among other commentators, has long been pointing this out (Emigrating or semigrating, from March 2015).

A separate report from Loos (Inter-Provincial Repeat Home Buyer Migration Trends) found that 56.2% of outbound repeat home buyers from Gauteng headed to the Western Cape last year. There is a similar trend in outflow from the Eastern Cape. The methodology is actually dead simple: Loos calculates what percentage of (and in what direction) repeat buying (i.e. the selling and then purchase by the same individual) is in a different province.

He says the “net inflow of repeat buyers to the Western Cape has been nothing short of spectacular, measuring a staggering 17.4% of the provinces total repeat buying, having accelerated steadily since 2009, and even more sharply from 2015’s 10.6% of repeat buying”.

He adds that “the further acceleration in net inflow repeat home buyers in 2016 explains much of the Western Cape’s far superior house price growth in 2016”. With this trend firmly in place, the rampant house price inflation in the five areas that have outperformed the broader metro is easily explained.

5 years 15 years
Atlantic Seaboard 104,4% 683,9%
City Bowl 89,9% 546,6%
City near eastern suburbs (incl. Woodstock, Salt River, Pinelands) 72,7% 432,4%
Southern Suburbs 63,6% 433,8%
Southern Peninsula 61,7% 411,2%
Cape Town Metro overall 59,9% 395,4%
Durbanville-Kraaifontein-Brackenfell 55,0% 393,5%
Blouberg-Milnerton-Melkbosstrand 53,0% 318,6%
Elsies River-Delft-Blue Downs 48,8% 507,7%
Cape Flats 44,3% 386,6%
Bellville, Parow and surrounds 40,8% 307,2%
Somerset West-Strand-Gordon’s Bay 39,2% 300,3%
Atlantis-Mamre 37,1% 525,6%
FNB House Price Index 29,24% 290%
CPI 28,97% 139%

Sources:  CT metro prices: FNB City of Cape Town House Price Indices; Overall FNB house price index: author’s calculations from FNB data; CPI: author’s calculations from StatsSA data.

Over a longer period, since 2001 when the FNB House Price Index started, two regions – Atlantis and those surrounding the University of Western Cape and Cape Peninsula University of Technology (to the north and east of the airport) – outperformed all but the City Bowl and Atlantic Seaboard.

In recent years, the commuter region of Bloubergstrand/Milnerton/Melkbosstrand is cited by Loos as one that has become more popular, perhaps because of the fact that it is “more affordable (or less in-affordable)”. But even here, year-on-year house price inflation in Q4 2016 was still 12.5%.

Loos does believe that a “little over-exuberance” has probably crept into the market, especially in the two regions (City Bowl and Atlantic Seaboard) that have vastly outperformed the rest.

He points to topography as one of the (obvious) major supply-side drivers, but adds two others: the city’s “growing traffic congestion challenge” as well as “the fact that some of the city’s prime business and employment nodes, most notably the CBD (Central Business District) and Claremont, are in close proximity to the mountain”.

“This should imply a longer-term shift in a portion of residential demand towards areas closer in proximity to the Cape Peninsula, and we believe it has.”

* Hilton Tarrant works at immedia. He can still be contacted at hilton@moneyweb.co.za.

6 Questions To See If You Are Ready To Buy A Home In 2017

If you have made the resolution of purchasing a home during 2017, you will need to ensure that you have assessed your financial situation and answered a few pertinent questions before approaching your bank for bond approval, recommends Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa.

“While banks have become slightly less stringent since the inception of the National Credit Act, financial institutions are likely to tighten up their lending criteria in 2017. Bond applicants will be put through their financial paces before being approved for a home loan,” says Goslett.

“Currently, only about 65% of first-time buyer bond applications are approved, which highlights the importance of being financially prepared before applying.”

Goslett suggests a few financial questions to answer before approaching your bank for finance:

What is my credit score?

A favourable credit score and clean credit record is a valuable asset when applying for a home loan. Each year consumers can obtain a free credit report from the credit bureaus within SA to assess their finance position. It is advisable for you to know your credit score and check your credit record for any inaccuracies.

“Any missed or slow payment will have a negative impact on a consumer’s credit score. However, it is also important to be mindful of the less obvious credit infractions such as opening too many accounts, numerous credit enquiries, co-signing for a third party or only paying the minimum required payment. All of these things will impair your records and could scare off lenders,” explains Goslett.

What is my annual income?

As a potential homebuyer, the maximum bond amount that you can qualify for is based on your annual income, so be sure to include any bonuses or annual investment returns when making this calculation. Your annual tax return documentation will assist in determining your actual yearly income.

How much debt do I have?

Another major consideration that banks take into account when determining the home loan amount they are willing to grant is the applicant’s amount of disposable income.

“To increase the disposable income you have available, get rid of or pay down debt as much as possible. Lenders will require you to provide them with all the debt you currently have to work out a debt-to-income ratio, which will be used as a tool to determine your level of affordability,” says Goslett.

“Having a lower debt-to-income ratio will be highly beneficial as it will increase the chance of gaining approval for a higher bond amount.”

What is my financial worth?

Banks will want to see the documentation that relates to any assets, such as vehicles, investments and income-generating properties. Goslett says that all of these aspects add to an applicant’s nett worth and will have a bearing on the amount that the bank is willing to grant.

What kind of deposit can I put down?

According to bond origination company BetterLife, the average cash deposit required by first-time buyers is 12.3% of the purchase price of the property. Based on the average home price paid by first-time buyers of R739 000, that equates to a cash amount of around R90 000 – not to mention the other costs associated with a home purchase such as transfer fees, attorney fees and bond costs.

What can I afford?

In an ideal situation your monthly home payment, which includes the bond, interest, taxes and insurance should not make up more than around 30% of your income before taxes.

“Even if the bank has approved a certain amount, it is not necessary to find a home at the maximum bond amount if you feel you won’t be comfortable with the monthly repayment. Owning a home is a long-term investment that needs to be sustained for the term of the loan, so it is advisable to purchase a property that you can comfortably afford,” says Goslett.

“Financial preparation is the key to homeownership readiness and will make the bond application process far smoother.”

  • Source: Fin24 – 6 Jan, 2017

The best time to buy real estate was always yesterday!

With house price growth at over 12% year-on-year, the Western Cape came out tops in the second quarter of 2016, followed by the Eastern Cape (7,6%), KwaZulu-Natal (KZN) (5,6%) and Gauteng (3%). These stats give a mixed bag of fortunes for real estate industry players, particularly estate agents.

Buoyant prices seem to indicate a great market to be in, but it is not easy for sales professionals to make money here. On the one hand, the Cape Town lifestyle, with access to the sea, mountains, winelands and a tourist-friendly range of restaurants and other entertainment options is pulling migration from Gauteng. The DA led local government structures are robust and service delivery is the best in SA, so infrastructure is well maintained, and progressive. The shortage of land plays a part in pushing prices up, but, unlike other areas of SA, residential expansion has moved towards the Cape winelands which offer truly beautiful surroundings. Wherever you are in Cape Town, the view is likely to be great.

But it’s heaven in hell for estate agents who, one would expect, can easily sell any stock they can sign up, but getting the stock is the challenge. No-one wants to leave Cape Town. The flow of buyers is in one direction; inwards. Few are going in the other direction. And so, it’s the large developments which are trying to provide stock to be sold by only a small number of affiliated or ‘in house’ sales agents, leaving the majority with little to sell. Of course, seeing great price increases and an influx of buyers will bring more sales players into the industry, hoping to capitalise on a perceived bullish market, only to exacerbate the stock shortages by seeing more agents having to claw and scratch to get a sale. With sellers hanging on to ‘get their price’, there is pressure for commissions to be cut, and inevitably, professionalism starts to take a few body blows.

It remains imperative, therefore, for buyers and sellers to look closely at the pedigree of the real estate agency they intend using. Usually, a good mix of agents, with a high proportion of well experienced agents who have many years of activity in the area is a good sign. New agents are also great, provided that the agency is well established, with a lot of depth of experience in the team that can guide and mentor any rookies. Ethics are crucial to the long term survival in this industry, and to the closure of a clean deal without ‘surprises’ that pop up after the sale.

Right now, all indications are that prices will ease nationally, but the Western Cape remains a wildcard, bucking the trend. If you are looking to buy, hanging on to ‘get your price’, may cost you, and stalling your intended purchase will inevitably see other buyers snapping up the stock. The buyers are out there, but they are astute and won’t easily overpay.

Get a good agent, listen to good advice, and make that decision. Life is always better when you are moving forwards, rather than wasting time by playing the waiting game. The best time to buy real estate was always yesterday!

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