1. Western Cape Residential Property Review 9 April 2015 John
Loos: Household and Property Sector Strategist Theo Swanepoel:
Property Market Analyst 2. General Market Conditions Is the long
correction getting near? 3. FNB House Price Index Inflation Rates
HOUSE PRICE GROWTH SLOWS AGAIN IN MARCH The FNB House Price Index
for March 2015 rose 5.3% year-on-year. This is slightly slower than
the previous months revised 5.6%, and continues a slowing
year-on-year price inflation trend of recent months. The average
price of homes transacted in March was R994,718. The seasonally
adjusted month-on-month house price inflation rate, a better
indicator of recent growth momentum than the year- on-year rate,
saw a further slowing to an insignificant -0.1% negative growth
rate in March, from a revised February, rate of -0.02%. This is the
5th consecutive month of month-on-month slowing. 5.3% 1.7% -20%
-10% 0% 10% 20% 30% 40% Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12
Jan-14 FNB House Price Index - Real and Nominal Growth FNB House
Price Index - year-on-year % change Real House Price (Adjusted for
CPI) - year-on-year % change 1.0% -0.1% -1.0% -0.5% 0.0% 0.5% 1.0%
Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 FNB House Price
Index Monthly Growth - Seasonally-Adjusted Month-on-Month % Change
FNB House Price Index - Month-on-Month Percentage Change on a
Seasonally- Adjusted Basis 4. Real House Prices HOUSE PRICES STILL
RISING IN REAL TERMS house prices continue to grow positively in
real terms, however, when adjusted for CPI inflation. As at
February (March CPI stats not available yet), real house price
inflation was 1.7% year-on-year, kept in positive territory by a
sharply lower CPI inflation rate of 3.9%. Despite some rise in
recent years, (+6.7% since the October 2011 low) the average real
house price level remains -17.2% below the high reached in December
2007 at the back end of the residential boom period. Looking back
longer though, the average real price remains 66.2% above the
January 2001 level, 100.0 204.3 166.2 50 100 150 200 Jan-01 Jan-03
Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Real FNB House Price Index Real
House Price Index (Adjusted for CPI) - June 2001 = 100 0 50 100 150
Jan-66 Jan-76 Jan-86 Jan-96 Jan-06 Real Absa House Price Index Real
Absa House Price Index (Adjusted for CPI) - 2012=100 5. FNB Valuers
Market Strength Index FNB VALUERS ALSO SEE SLOWING RATE OF
IMPROVEMENT The FNB Valuers Market Strength Index rating is now
above the key 50 level, recording 50.78 as at March, slightly
higher than Februarys revised 50.65. Higher than 50 means that the
Demand Rating is higher than the Supply Rating (below 50 means the
opposite) However, the Valuers point to a significantly slower rate
of improvement in market strength of late. On a month-on-month
seasonally-adjusted basis, the rate of increase in the Valuers
Market Strength Index slowed to +0.25%. This is down from a high of
0.5% as at September 2014. This slowing growth rate has been due to
a sharply slower growth rate in the Valuers Demand Rating, from
0.61% in September 2014 to 0.03% as at March 2015. 50.78 35 40 45
50 55 60 65 70 75 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13
Jan-15 IndexScale0to100 FNB Valuers Residential Market Strength
Indices FNB Valuers' Market Strength Index (Scale 0 to 100 where 50
indicates a balanced market) Demand rating (scale 0 to 100) Supply
rating (scale 0 to 100) -1.5% -1.0% -0.5% 0.0% 0.5% 1.0% Jan-09
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 FNB Valuers Market
Strength Indices Growth - Seasonally-Adjusted Month-on-Month %
Change FNB Valuers' Market Strength Index Demand rating Supply
rating 6. Key Economic Data ECONOMIC DATA POINTS TO WEAK START TO
2015 We had expected a better start to 2015 than what has
materialized, based on the benefits of sharply lower oil, and to a
lesser extent Global food, prices. But some economic negatives have
emerged, including lower SA export commodity prices, and
electricity supply disruptions Disappointing economic data early in
2015; -1.4% y/y decline in Electricity Available for Distribution
in SA-9th consecutive month of y/y. Jan Mining Production down
-4.7% year- on-year; Manufacturing Prod. down -2.3%; FNB-BER
Building Sector Confidence Index in the 1st Quarter, down from a
previous level of 60, to 55; RMB-BER Business Confidence Index
level receded slightly from 50 in the 4th quarter of 2014 to 49 in
the 1st Quarter of this year. -4.7 -2.3 -10 0 10 20 30 Jan-10
Jan-12 Jan-14 % Manufacturing and Mining Output Mining production
(incl gold) (y/y%) Manufacturing production (y/y%) -1.4 -8 -6 -4 -2
0 2 4 6 8 10 Jan-10 Jan-12 Jan-14 % Growth in Electricity Consumed
Electricity consumed (y/y%) Datasource: StatsSA 7. SARB Leading
Indicator LEADING INDICATOR REMAINS WEAK The SARB Leading Business
Cycle Indicator continues to point to near term economic weakness.
While the month-on-month rate of change in this indicator shot back
into positive territory in January (Commodity prices actually being
a slight positive in that particular month), it is volatile on a
monthly basis, and the more stable year-on-year rate of change has
remained in negative territory ever since November 2013 We believe
that the slowed house price growth reflects this weak start to the
year economically. -2.22 -3.5 -2.5 -1.5 -0.5 0.5 1.5 2.5 3.5 -25
-15 -5 5 15 25 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15
Month-on-month%change Year-on-year%change SA Leading Business Cycle
Indicator Leading Business Cycle Indicator - year-on-year
percentage change 3-Month Moving Average - month-on-month % change
8. Bond Affordability 93.73 182.58 105.95 0 50 100 150 200 1995
1998 2001 2004 2007 2010 2013 Index2010=100 Average Registered Bond
Affordability Index Average Bond Instalment on Average Value Bond
at Prime/Average Employee Remuneration 9. The Main Phases of a
Bubble 10. Back to Business as Usual by running unsustainable
deficits 6.19 1.81 -3% -1% 1% 3% 5% 7% -3 -1 1 3 5 7 1999 2001 2003
2005 2007 2009 2011 2013 % Real Disposable Income Growth vs Real
Economic Growth Real Disposable Income - year-on-year % change Real
GDP - Year-on-year % change (Right Axis) 0 10 20 30 40 50 60 -10 -6
-2 2 6 10 14 1970 1975 1980 1985 1990 1995 2000 2005 2010 %ofGDP
%ofGDP Government Debt and Fiscal Deficit National government
deficit (% of GDP) Government debt (% of GDP) -5.1 -20 -15 -10 -5 0
5 10 15 20 -10 -7 -4 -1 2 5 8 1980 1983 1986 1989 1992 1995 1998
2001 2004 2007 2010 2013 % %ofGDP Current Account as Percentage of
GDP Current account balance (% of GDP) Real Prime Rate 11.
Economy-Wide Vulnerability/Risk SA highly vulnerable to supply-side
disruptions THE MAKINGS OF HIGH ECONOMY-WIDE RISK Economic
Stagnation since 2008 in the absence of structural change Rising
social tensions Eskom in decline Increasing pressure on government
leads to widening deficits and debt.and vulnerability increases 12
900 000 14 600 000 11 600 000 0 2 000 000 4 000 000 6 000 000 8 000
000 10 000 000 12 000 000 14 000 000 16 000 000 1979 1984 1989 1994
1999 2004 2009 2014e Mandays Lost Due to Strike Action (2014 - Year
to September) 10 34 2 32 27 105 111 81 173 155 48 0 20 40 60 80 100
120 140 160 180 200 2004 2005 2006 2007 2008 2009 2010 2011 2012
2013 2014b Number of Major Service Delivery Protests - (2014 = year
to April) 5.3 4.4 2.1 3.0 1.5 0.2 2.6 3.6 3.6 2.4 0 1 2 3 4 5 6
1965- 1969 1970- 1974 1975- 1979 1980- 1984 1985- 1989 1990- 1994
1995- 1999 2000- 2004 2005- 2009 2010- 2014 % Real GDP Growth up
until late-1990s - 5-year annual averages Real GDP Growth - 5-year
annual averages (%) 12. Mortgage Lending environment 13. NPLs and
Approval Rates RECENCY BIAS DRIVES HIGHER APPROVAL RATES NPL Ratio
for the banking sector has been declining since 2nd half of 2010
Predictably, the broad trend towards higher approval rates also
started around that time 77.9% 57.3% 60.8% 68.3% 20.0% 30.0% 40.0%
50.0% 60.0% 70.0% 80.0% 90.0% Jul-07 Jul-08 Jul-09 Jul-10 Jul-11
Jul-12 Jul-13 Jul-14 Oobarometer EffectiveApproval Rate Effective
Approval Rate - 3-month moving average - % 4.1% 10.5% 1.3% 0.0%
2.0% 4.0% 6.0% 8.0% 10.0% 12.0%
Dec14Dec13Dec12Dec11Dec10Dec09Dec08Dec07Dec06 Big 4 Banks Non
Performing Loan Ratio (Based on published financial results) Big 4
Banking Groups- Non Performing Loans expressed as a percentageof
TotalHome Loans Outstanding 14. Effective Interest Rates More
competitive on mortgage loans -1.53% -0.38% 0.68% 0.59% 0.42%
-3.00% -2.00% -1.00% 0.00% 1.00% 2.00% Jul-07 Jul-08 Jul-09 Jul-10
Jul-11 Jul-12 Jul-13 Jul-14 WeightedAverage Differentialfrom Prime
Rate on Home Loans (Ooba) Weighted Average Rate of Rate Concession
-3-month movingaverage -% Trendchange to come??? 15. Deposits and
LTP 13.1% 23.7% 19.4% 14.4% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0%
Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Oobarometer
Average Deposit Average Deposit- % of Purchase Price - 3-month
moving average 12-month moving average 16. Western Cape Still the
strongest major market 17. FNB Western Cape House Price Index
Inflation Rates WESTERN CAPE HOUSE PRICE INFLATION STRONG BUT
SLOWING The FNB Western Cape House Price Index for the 1st Quarter
of 2015 rose 9.2% year-on-year. This is mildly slower than the
10.7% recorded in the 1st quarter 2014 high of 10.7%, but remains
very strong .Of the major provinces, the Western Cape had the
highest house price growth in the 1st quarter, followed by the
Eastern Cape with 7.1%, Gauteng at 5.4%, and KZN with 4.8%. The 5
Smaller Provinces combined FNB House Price Index rose by 3.4%
year-on-year. The province also remains the most expensive, with an
average price of homes transacted of R1,222,081, reflecting the
combination of a strong ling term growth economy, combined with a
land scarcity issue relative to the other strong but landlocked
economy of Gauteng. 35.0% -10.8% 9.2% 3.03% -20.0% -10.0% 0.0%
10.0% 20.0% 30.0% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
2012 2013 2014 2015 FNB Western Cape House Price Index FNB Western
Cape House Price Index - year-on-year percentage change RealHouse
Price (CPI Inflation Adjusted) - year-on-year percentage chaange
5.4% 9.2% 4.8% 7.1% -20.0% -10.0% 0.0% 10.0% 20.0% 30.0% 40.0% 2002
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Major 4 Provinces' House Price Inflation Rates (year-on-year)
Gauteng WesternCape KZN EasternCape 18. FNB Valuers Market Strength
Index FNB VALUERS ALSO SEE SLOWING RATE OF IMPROVEMENT The FNB
Western Cape Valuers Market Strength Index rating has been steadily
rising, approaching the 50 mark at 48.51 The big source of strength
in the province appears to have been the Cape Town Metro region ,
whose Market Strength Index is significantly higher at 54.23
However, off this high base we have recently seen signs that the
rate of increase in the Cape Town Metro Market Strength Index has
started to slow7.6% 5.9% -20.0% -15.0% -10.0% -5.0% 0.0% 5.0% 10.0%
2001 2003 2005 2007 2009 2011 2013 2015 FNB Western Cape Valuers
Market Strength Index FNB Western Cape Valuers' aggregate
residential demand rating minus aggregate residential supply rating
Cape Metro Market Strength Index 48.51 54.23 35 45 55 65 2001 2003
2005 2007 2009 2011 2013 2015 IndexScale2to-2 FNB Western Cape
Valuers Market Strength Index FNB Western Cape Valuers' aggregate
residential demand rating minus aggregate residential supply rating
Cape Metro Market Strength Index 19. FNB Estate Agent Survey
Activity Rating WESTERN CAPE ACTIVITY RATING OUTPERFORMING NATIONAL
AVERAGE The Western Cape component of the FNB Estate Agent Survey,
focused largely on the major metro regions, appears supportive of
the regions superior house price inflation in recent times. Whereas
the National Average Activity Rating by agents for the 1st quarter
of 2015 was 6.73, the Western Cape rating was noticeably higher at
7.18, and has been above the national average for the past 4
quarters However, as in the case of Western Cape House Price
Inflation, the rate of increase in the Western Cape Activity Rating
has also slowed over the past 2 quarters after a prior surge. 7.18
4 4.5 5 5.5 6 6.5 7 7.5 8 2007 2008 2009 2010 2011 2012 2013 2014
2015 ActivityLevelsonascaleof1-10 Western Cape Residential Market
Activity Indicator Western Cape Activity Rating (Scale 1 to 10)
National Activity Rating 30.4% 10.5% -30% -10% 10% 30% 2008 2009
2010 2011 2012 2013 2014 2015 Rate of Change in Western Cape
Activity Levels according to FNB Estate Agent Survey FNB Estate
Agent Survey Western Cape Rating of Residential Activity - y/y%
(Left Axis) 20. FNB Estate Agent Survey Average time of properties
on the market WESTERN CAPE AVERAGE TIME ON THE MARKET LOWER THAN
NATIONAL AVERAGE When estate agents in the FNB Estate Agent Survey,
are asked to estimate the average time that properties are on the
market prior to sales, once again the Western Cape agents point to
a stronger market than the National Average, with the 10.1 weeks on
the market being significantly faster than any of the major metro
regions in the country. This average time on the market is vastly
improved (lower) on the 20 weeks estimated at the beginning of 2013
10.1 0 4 8 12 16 20 24 2006 2007 2008 2009 2010 2011 2012 2013 2014
2015 WeeksandDaysontheMarket Western Cape - Average time that a
property is on the market Western Cape - Weeks that the average
property is on the market before being sold Smoothed 21. Financial
Stress-Related Selling remains moderate WESTERN CAPE DOWNSCALING VS
UPGRADING Using a 2-quarter moving average for smoothing purposes,
the FNB Estate Agent Survey questions surrounding reasons for
selling continue to point to relatively moderate levels of selling
in order to downscale due to financial pressure of 14% of total
selling in the Western Cape for the 2 quarters up to the 1st
quarter of 2015. Also a sign of financial strength is the
percentage of sellers selling in order to upgrade, which recorded a
higher 18% in the same 2 quarters Therefore, although there have
been early signs of the pace of market strengthening slowing, there
is little sign yet of rising financial pressure 14.0 18.0 0.0 8.0
16.0 24.0 32.0 40.0 Q1-2008 Q1-2010 Q1-2012 Q1-2014 %ofTotalSales
Western Cape Downscaling due to Financial Pressure vs Upgrading -
2-quarter moving average Percentage of total sellers downscaling
due to financial pressure Percentage of sellers selling in order to
upgrade 22. Drivers of Above-Average Regional Residential Market
Performance WESTERN CAPE BENEFITS MORE FROM THE RETURN OF FOREIGN
DEMAND The Western Cape is traditionally a popular target for
foreign home buyers, and these make up a larger portion of its home
buying than is the case in other provinces Therefore, given the
return to popularity in recent years of residential property as a
global asset class, the Western Cape has benefited by a significant
rise in foreign buying expressed as a percentage of total buying,
to around 10% Bear in mind that the FNB Estate Agent Survey is
biased towards the more highly-traded higher end former suburban
markets, distorting this percentage. However, the upward trend in
the percentage is important, and the fact that it is well above the
nearer to 5% National Average which is surveyed in the same way.
12.00 3.00 10.00 1 2 3 4 5 6 7 8 9 10 11 12 2005 2007 2009 2011
2013 2015 % Western Cape Foreign Home buyers as a percentage of
total buyers Estimated foreign home buyers (buying homes in SA)
expressed as a percentage of total South African home buyers - 2-
Quarter moving average 23. Drivers of Above-Average Regional
Residential Market Performance WESTERN CAPE BENEFITS MORE FROM THE
SEMI-GRANT DEMAND The Western Cape is also a popular target for a
group of repeat home buyers from other provinces in South Africa.
Using Deeds data, we estimate the number of individual repeat home
buyers that sell in one province and then purchase in another, and
use this as a proxy for repeat buyers relocating between provinces.
It is possible that some 2nd holiday and buy-to-let home buying is
caught in this despite some filters to prevent this. Whereas the
other 3 of the major 4 provinces have net outflows of repeat buyers
(inflow minus outflows of repeat buyers), the Western Cape retains
its very strong net inflow of repeat buyers, a function of the
provinces perception of being well managed as well as having a good
lifestyle and strong economy. 9.7% -1.6% -1.8% -2.1% -6.0% -4.0%
-2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 1999 2001 2003 2005 2007
2009 2011 2013 Major Provinces Net Inflow of Repeat Home Buyers -
expressed as a percentage of the province's total repeat buying
WESTERNCAPE GAUTENG KWAZULUNATAL EASTERNCAPE 24. Economic Growth -
Western Cape narrowly behind Gauteng 3.58% 2.70% 1.99% 2.04% 3.30%
1.88% 3.59% 2.39% 2.49% 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00%
3.50% 4.00% Real GDP Growth - Annual Average - 1996-2013 25. Major
provinces income and house price comparisons 211 825 224 775 139
167 113 003 68 951 64 284 35 388 29 905 0 50000 100000 150000
200000 250000 Gauteng WesternCape KZN EasternCape Major 4
Provinces' Income Comparisons (Rand) - 2013 PerHousehold Income -
2013 (Rand) PerCapita Income - 2013 - (Rand) 920 984 1 049 848 882
931 701 495 971 971 1 153 688 928 345 758 182 0 200000 400000
600000 800000 1000000 1200000 Gauteng WesternCape KZN EasternCape
Major 4 Provinces' House Price Comparisons (Rand) - 2012 and 2013
2013 2014 26. Provincial Affordability 13.36 16.33 24.95 23.46 0 5
10 15 20 25 30 35 40 45 2001 2002 2003 2004 2005 2006 2007 2008
2009 2010 2011 2012 2013 Major 4 Provinces' Average House Price/Per
Capita Income Ratio Gauteng WesternCape KZN EasternCape 4.35 4.67
6.34 6.21 0 2 4 6 8 10 12 2001 2002 2003 2004 2005 2006 2007 2008
2009 2010 2011 2012 2013 Major 4 Provinces' Average House
Price/Average Household Income Ratio Gauteng WesternCape KZN
EasternCape 27. 1st Time Buying Western Cape on the low side is
affordability biting? 21 25 0 5 10 15 20 25 30 2006 2007 2008 2009
2010 2011 2012 2013 2014 2015 % Western Cape First time buying
activity Western Cape - First time buyers expressed as a percentage
of total buyers Smoothed 28. Densification - the result of
urbanisation and weak economic infrastructure investment 221.07
179.65 147.75132.63 102.96 206.70 140.89 0 50 100 150 200 250
1950-4 1955-9 1960-4 1965-9 1970-4 1975-9 1980-4 1985-9 1990-4
1995-9 2000-4 2005-9 2010-13 Average Building Size (Square Metres)
- Grouped according to Build Date Full Title Sectional Title All
Properties 1 067.54 498.06 0 200 400 600 800 1000 1200 1950-4
1955-9 1960-4 1965-9 1970-4 1975-9 1980-4 1985-9 1990-4 1995-9
2000-4 2005-9 2010-13 SquareMetres Average Full Title Stand Size -
Square Metres Average Full Title Stand Size - Square Metres 25 29.
Curitiba Approach Transport corridors and Zoning for Density 27 30.
MARKET ANALYTICS AND SCENARIO FORECASTING UNIT JOHN LOOS: HOUSEHOLD
AND PROPERTY SECTOR STRATEGIST 011-6490125 [email protected] THEO
SWANEPOEL: PROPERTY MARKET ANALYST 011-6320604
[email protected]
