2011 Provincial House Price Performances

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Examining the house price performance of the major provincial housing markets, Gauteng appears to have been the most stable in recent years, not showing as much price deflation during 2009, as the national house price decline, but not showing the same extent of “mini-recovery” in price growth in 2010/11 that the national market as a whole has shown.



KZN AND EASTERN CAPE SHOW BETTER-THAN-AVERAGE HOUSE PRICE GROWTH.

So, in 2011, the average Gauteng house price increase was measured at 2.5% (compared to 3.1% growth on a national basis), slightly lower than the 2.9% recorded in 2010 (compared to 6% on a national basis).

We believe that Gauteng’s seemingly less cyclical market (in terms of price growth fluctuations) is due to its economy being arguably one of the most developed as well as one of the best diversified, not being as exposed to the highly cyclical manufacturing and related sectors as KZN and the Eastern Cape for instance.

In addition, Gauteng has a very small holiday market relative to the size of its primary residential market, and primary residential demand is far less cyclical than holiday residential demand due to more essential nature.

On top of this, Gauteng is SA’s main “head office” region, and during tough economic times such as those of recent years one often finds corporates  centralizing more functions to head office and cutting back on their operations in smaller economic regions. This may have partly cushioned the employment blow of the recession in Gauteng.

So, in short, we would expect Gauteng to “underperform” other more cyclical regions in boom times, but outperform them in a slump.

By comparison, we appear to see a little more fluctuation in the major coastal provinces’ housing markets. The Western Cape appeared to have had a bit more of a mini price recovery than Gauteng in 2010, recording 8.4% growth in that year, but has slowed somewhat to 3.1% in 2011, still slightly higher than Gauteng and right on the national average. The other 2 major coastal provinces, namely KZN and Eastern Cape, however, appear to have taken a little longer to gather steam following the recession of 2008/9. Both provinces’ average house price growth exceeded the national average in 2011, on top of showing an acceleration on 2010 growth rates. KZN saw average house price growth of 4.7% in 2011 (up from 1.5% in 2010), while the Eastern Cape showed estimated price growth of 6.4% in 2011, up from 1.1% in 2010. 

These two provinces therefore appear to be “laggards” in the residential property cycle. Possible explanations may be a high portion of holiday property, which has been underperforming primary residential demand in tough financial times (although holiday markets are still believed to be underperforming). But More likely, perhaps, is that the economies of these two regions, due to their heavy dependence on the highly-cyclical manufacturing sector, took more of a knock in the 2008/9 recession than did Gauteng and the Western Cape, and this may have caused something of a lag in the improvement thereafter.

MINOR PROVINCES AS A GROUP 

Finally, the FNB Minor Provinces House Price Index showed average estimated growth of 4% year-on-year in 2011, mildly down from 5.6% in 2010.

These more rural and predominantly inland regions also show some resemblance to the more stable Gauteng market, with the index seemingly pointing to less volatility in recent years than the coastal country regions. Arguably less holiday-driven than many areas of the coast (though they do nevertheless have significant holiday markets), and heavily exposed to the “non-cyclical” agriculture sector (which hasn’t fared badly in recent years), this should perhaps not be too surprising either.

IN CONCLUSION 

Nationally, 2011 saw average house price growth slowing, which was due to slowing growth in the two major markets, i.e. Gauteng and the Western Cape, along with the 5 minor provinces as a group. The two provinces bucking the trend were KZN and the Eastern Cape, who saw further acceleration from 2010 off low price bases. It is possible that these two provinces’ significant-sized holiday markets, and their dependence on manufacturing, caused a bit more pain in the recession times compared to the other provinces, and this may be the explanation for their more lagged price growth recovery. These 2, however, are expected to “join the trend” of slowing price growth in 2012, as the country sees expected economic growth slow further due to global economic pressures.

 

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