But FNB said house price growth in the city had slowed from a 10-year revised high of 15.6percent in the second quarter of 2016.
FNB added that average house price inflation in the Atlantic Seaboard, the most expensive sub-region in the city, slowed the most sharply from a multi-year high of 27.5percent in the four quarters of 2016 to 2.3percent year-on-year in the first quarter of this year.
John Loos, a household and property sector strategist at FNB, said this was not surprising because the Atlantic Seaboard had experienced the most rapid cumulative growth of all the sub-regions in the city over the past five years at 111percent, resulting in a deterioration in affordability.
Loos believed that the drought must also have had some impact on the housing market through its negative impact on the Western Cape economy and on sentiment within and towards the region.
But Loos said they believed the slowing house price growth was “overdue” and more attributable to “natural market causes” in response to the significant deterioration in home affordability in prior years.
He said repeat home buyer “migration” to the Western Cape from the rest of the country also slowed down last year, which was a further factor in slowing housing demand in Cape Town.
“This may be in part due to poor home affordability in Cape Town, with the drought making the region temporarily less appealing,” he said.
If the drought conditions deteriorate further, it could at some point push the Western Cape economy into a recession, which could have a significant impact on the region’s housing market, Loos added.
It was not easy to predict such a major risk to the region, particularly as it depended on the winter rainfall season this year in the Western Cape, he pointed out.
Eight of the 12 sub-regions in the city experienced slowing year-on-year house price growth in the first quarter of this year, Loos said.
- BUSINESS REPORT