Wednesday, 10 May 2017 17:03

Cape Town’s high weighting in the new FNB Luxury Area Value Band House Price Index may explain this index’s “outperformance” in recent years

Written by
Rate this item
(1 Vote)

FNB area value band house price index performances.


We have undertaken an overhaul of our FNB Area Value Band House Price Indices (see note at the end of this report regarding the methodology). There are 5 Area Value Band House Price Indices under this new approach, compared to 4 such indices under the old approach. Also important to note is that our previous Area Value Band House Price Indices included only the 6 major metros. The new indices include all cities and towns in South Africa.

The 5 indices are the Luxury Area House Price Index (Average Price = R2.276 million), the Upper Income Area House Price Index (Average Price = R1.204 million), the Middle Income Area House Price Index (Average Price = R872,391), the Lower Middle Income Area House Price Index (Average Price = R572,458), and the Low Income Area House Price Index (Average Price = R353,934)

The 1st quarter 2017 results show the Low Income Area House Price Index to be the strongest performer in terms of average house price growth, recording 12.7% year-on-year for the quarter.

It is possible that this Low Income Area segment is a genuine “outperformer” in recent times, given a weak economy causing a financially constrained Household Sector, and a resultant search for home affordability. However, this segment’s house price inflation performance can be skewed by the original registration of low cost subsidized homes at values not related to true market value, while the selling of council owned rental stock over the years at values not always related to market value may also distort the picture in this segment.

Perhaps more interesting, however, is at the opposite end of the area value band scale to see the Luxury Area Value Band outperforming all but the Low Income Area Value Bands The Luxury Area House Price Index inflated year-on-year by 6.9% in the 1st quarter of 2017, beating the inflation rates of 5.1% for Upper Income Areas, 5.2% in the case of Middle Income Areas, and 4.7% for Lower Middle Income Areas.

This outperformance of the Luxury Area Value Bands may come as something of a surprise to some, given the financial constraints of the Household Sector in a slow growth economy with rising personal tax rates, sharply rising rates and tariff bills, along with newly increased transfer duty rates for higher priced homes.

However, we believe that this outperformance has much to do with the heavy weighting that the now expensive City of Cape Town, and broader Western Cape, receives in this Luxury Area Index, and the fact that that region’s house price growth has been very strong in recent years.

The City of Cape Town Metro accounts for a large 34.44% of total repeat sales transactions in the Luxury Area Index (compared to a lesser 28.42% for Joburg and 10.35% in the case of Tshwane Metro).

As we go down the area value bands, Cape Town’s weight diminishes to 15.52% in the case of the Upper Income Areas, and 10.42% in the Middle Income Area Value Band.

Given this heavy influence of Cape Town in the Luxury Area Value Band Index relative to the lower priced indices, and Cape Town’s as well as the broader Western Cape’s property boom of recent years which has been out of kilter with weakness in the other major regions, we believe that much of the superior performance of the Luxury Area Value Band is a City of Cape Town/Western Cape story.

The Western Cape has been a major “semi-gration” destination for repeat home buyers from other South African regions for some years now, as well has normally having the highest percentage of foreign buyers of its homes compared with other major South African regions. Apart from this, the topography of the City of Cape Town (ocean-locked on 2 sides and with mountainous areas the length of the Cape Peninsula) gives it a greater natural land constraint for residential development compared with landlocked Gauteng for instance.

In recent times, we have begun to see signs of slowing house price growth in Cape Town and the Western Cape, but the rate of increase still far exceeds the rest of the country’s major regions. We believe that this price growth superiority of the Western Cape, coupled to its heavy weighting in the Luxury Area Value Band House Price Index, is thus a key factor that has driven our revised FNB Luxury Area House Price Index to growth rates superior to all of the other area value band indices bar the Low Income Area Index.

Off a higher growth base, however, the FNB Luxury Value Band House Price Index has seen its rate of growth slow more noticeably than 3 of the value bands below it. It is thus possible that this Luxury Area segment will not remain at faster growth rates than the Upper Income, Middle Income and Lower Middle Income Area Value Bands for too much longer.

Last modified on Wednesday, 10 May 2017 17:14

Most Popular

Ballito Junction Regional Mall is crowned the best new shopping centre in South Africa

Sep 22, 2017
Aerial image of Ballito Junction
Ballito Junction Regional Mall has been named the best new shopping centre development in…

Jones Lang LaSalle South Africa 2017Q2 reports reveal useful trends on industrial, office and retail property sectors

Sep 21, 2017
Christian Ulbrich
Real estate consulting firm, JLL South Africa, has released its Q2 2017 research reports…

Rode & Associates says Capitalization rates are now firmly on a rising path

Sep 22, 2017
Johan Hattingh
Property, whether directly held or listed, was the darling of South African investors…

ADvTech Properties to expand asset base to R6bn by 2022

Sep 26, 2017
Vongani Mbhokota
The properties division of JSE-listed ADvTECH, Africa’s leading private education…

Esther Mahlangu attends the grand opening of Phola Mall

Sep 29, 2017
Phola Mall Grand Opening
Month-end saw the grand opening of Phola Mall, the first fully enclosed regional shopping…