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Analysing CT property on 2009-11-06

The Third Quarter Cape Metro FNB Residential Property Barometer pointed to a significant jump in activity levels in the region, after a very weak second quarter level. This suggests that the region is beginning to feel the positive impact of the series of interest rate cuts that took place in the first half of 2009.

The Property Barometer is a survey of a sample of estate agents in the major cities of the country regarding their personal experience of market conditions.

The main Barometer question relates to the level of demand activity and agents are asked to rate the level of demand that they experience on a scale of one to 10.

After an initial rise in the first quarter to 4.71, agents estimated activity to have declined back to 4.21 in the second quarter. The third quarter level of 5.82 is thus a significant rise in what was a very weak demand level. The third quarter survey was undertaken in mid-August, after the bulk of the South African Reserve Bank's 2009 interest rate cuts to date.

Coastal regions most optimistic

The jump in the Western Cape’s activity rating means that the agents surveyed from that region are more upbeat about activity than their Gauteng counterparts, although all regions have seen an improvement.

The three major coastal metros, namely eThekwini (5.86), Mandela Bay (5.82), and Cape Town (5.82) are now more upbeat in their estimates of activity compared with Joburg’s 5.47 and Tshwane on 5.76.

Greater seller realism setting in

The estimated percentage of properties sold at below asking price showed a significant decline from 91 percent in the second quarter to 83 percent in the third quarter, while the average time of a property on the market prior to being sold declined sharply from 22 weeks and 2 days in the second quarter to 16 weeks and 1 day in the third. These two indicators, when read together, point towards more realistic pricing by sellers. The greater realism may not only be due to sellers setting prices lower, but also due to the market catching up to price levels, therefore making previously unrealistic price levels now a little more realistic in a stronger market.

Selling in order to downscale due to financial pressure declined significantly in importance, dropping from 36 percent of total selling to 25 percent from the second quarter of 2009 to the third. Simultaneously, selling in order to upgrade jumped from nine percent of total selling to 17 percent over the same period. Both of these numbers suggest that interest rate cuts have now had a significant impact in terms of alleviating the pressure on households as a whole.

As a percentage of total selling, emigration selling in Cape Town showed a surge during 2008, similar to the trend in other metros, but never reached as high a level as the likes of the Gauteng metros or eThekwini. After a peak of 14 percent in the third quarter of 2008, there has been a broad decline in emigration selling’s significance to only four percent of total selling by the third quarter of this year, according to the estate agents surveyed.

Oversupply and price deflation still evident

Although house price deflation was widespread in many parts of Cape Town in the second quarter of 2009 (using deeds data to estimate), there were indeed a few areas that appeared to have started diminishing year-on-year price deflation as demand picked up:

•Cape Town-Fishoek-Simonstown (average price = R1.137-million) showed a slight price deflation of -0.4 percent y/y in Q2 2009. This means that, to date, this sub-region appears to have experienced the least price deflation of any of the metro’s sub-regions and it is believed that land scarcity around Table Mountain has contributed to this through preventing a major oversupply of new stock from having been created during the property boom years.

•Out to the North of the metro, where land is seemingly more plentiful, and a major supply of new stock was created in the boom years, price deflation appears more widespread. Milnerton-Melkbosstrand (average price = R774 659) showed price deflation of -4.8 percent y/y in Q2 2009, while Goodwood-Parow-Bellville-Kuilsriver (average price = R811 655) showed price deflation of -3.2 percent y/y. Brackenfell-Kraaifontein-Durbanville (avgerage price = R773 467) showed deflation of -3.1 percent y/y. However, all three areas’ deflation rates, while still significant, reflected improvements on the previous quarter.

•Of the former apartheid-era 'township' areas, the Cape Metro former coloured areas (avgerage price = R279 990) showed price deflation of -3.5 percent y/y in Q2 2009. The former black township areas of the Khayelitsha-Gugulethu region (avgerage price = R228 380) still showed huge price inflation of +26.6 percent, although decelerating.

•The Cape Metro as a whole (avgerage price = R881 102) showed price deflation of -1.5 percent y/y in Q2 2009


Although not expected to be a strong recovery, the third quarter Barometer points to a significantly stronger situation in the Cape Town residential market, following a period in which demand activity battled to improve. The third quarter jump in demand was significant, while other key indicators such as average time on the market and percentage of sellers achieving their asking price have also improved. Deeds data runs a bit behind, but while area price deflation was still widespread as at the second quarter, one could begin to observe some of the Cape Town regions’ price indices beginning to turn for the better.

To date, the market improvement is largely the result of interest rate cuts, and banks’ responses to better market conditions by relaxing lending criteria has reinforced the trend. In the near term, though, the economy is expected to provide more support for the market as we emerge from recession.

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