Cape Town house prices easing

• House price inflation in Cape Town has been moderating from highs around 15% y/y in Q1:16, to 9.7% y/y in Q4:17 (see chart below), largely on deteriorating affordability, softer demand, and the diminishing relocation of high net worth individuals to the Western Cape.
• Although it would be difficult to separate and quantify the reasons for this easing growth, the Cape Town water crisis will have exacerbated it. Drought could affect the property market via at least two channels: one being an income effect, the other sentiment.
• Not only has the drought led to agricultural job losses, but the spill-over effects of the agricultural sector to other sectors will likely further depress household income growth in the Western Cape. Also, the drought, and government’s slow response, will affect consumer sentiment negatively; demand for property is therefore expected to suffer and, ultimately, further dampen house price inflation.

By Siphamandla Mkhwanazi