By John Loos
Not only are some parts of the Western Cape on a different load shedding schedule (four while the rest of the country is at 6 stage) but years of building a popular “brand” as a lifestyle and well-run region appears to be increasingly paying off for the Western Cape economy and property market, writes FNB economist John Loos.
The Western Cape remains on a very different trajectory to other major provinces, with strong growth in new plans passed defying the negative pressures from recent interest rate hiking and national economic weakness.
Last week’s StatsSA residential building statistics release for July pointed to moderate year-on-year growth in new planning activity in recent months.
This growth has pleasantly surprised. Given the SARB’s steady interest rate hiking from late-2021, we had expected some slowdown in planning activity by now.
And delving into the provincial breakdowns, indeed two of the three major provinces are exhibiting signs of slowdown, Gauteng showing a -17.8% year-on-year decline for the three months to July 2022, and KZN growth only slightly positive at 1%.
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Therefore, it has been the Western Cape that appears largely responsible for the positive national growth rate in residential plans passed.
This province continues to produce signs of significant out-performance, with its number of units’ residential plans passed growing by a very strong 50.76% year-on-year for the 3 months to July.
This strong growth is leading to the increasing likelihood that the Western Cape’s annual building plans passed total for 2022 may exceed those of Gauteng for the first time in recorded history.
This is significant, because Gauteng is still by far the largest provincial economy as well as the province with the largest population.
For the first seven months of the year. In the year to date, the Western Cape’s number of units’ residential building plans passed has accounted for 37.3% of the national total, above Gauteng’s 28.2% share, with the 3rd largest market, KZN, coming in at 14.3%.
The relative picture was similar for residential buildings completed, Western Cape having 46.7% of the national share in terms of number of units, Gauteng 30.3% and KZN 9.8%.
The Western Cape’s meteoric rise in share of plans passed and completions isn’t the only trend that catches the eye.
The drop in Gauteng’s share is also a key feature in recent years, while the shares of other smaller regions appear to have been more stable in recent years, KZN’s share rising mildly too. In 2019, Gauteng’s share of plans passed was a major 48.5% of total plans completed 55.7%, just prior to this significant multi-year decline.
Years of building a popular “brand” as a lifestyle and well-run region appears to be increasingly paying off for the Western Cape economy and property market.
While one cannot rule out reporting issues affecting data, we believe that this shift in relative share of the development market move away from Gauteng towards the Western Cape and to a lesser degree KZN points towards a longer term “economy shift” towards the coastal regions.
For over two decades, we have noticed a mounting “net semi-gration” trend of skilled and higher income households most notably in the direction of the Western Cape, but also to certain KZN coastal regions.
This has led to the expectation that the Western Cape economy would at some point begin to outperform the rest, because SA’s modern services dominated economy is heavily dependent on skilled labour, and the Western Cape is best at attracting and retaining these.
On top of this, the skilled migrants bring significant purchasing power to the region.
So, the relatively strong residential planning and completions activity is likely far more than just the demand for homes from a recent surge in semi-grants into the region.
More likely is that the region’s economy is beginning to outperform the rest, and that this is driving it towards a larger housing development market as job and income growth in the province begins to outperform the other provinces.
Simultaneously, the data may point to an increasingly troubled Gauteng economy, a greater skills exodus there having the opposite impact on its economy.
In recent times, the FNB Commercial Property Broker Survey has pointed towards the Greater Johannesburg Metro Region of Gauteng as having the weakest Office, Industrial and Retail Property Markets of the major metro regions in the country.
This points to Greater Johannesburg possibly having the weakest economic performance of the major metros, and this weakness may be impacting on employment, purchasing power, and thus on housing development in the region.
It would appear that the Western Cape currently marches to a very different economic beat to the rest of the country, the bulk of the country’s economy experiencing more significant economic and property market pressures.
* John Loos is Property Sector Strategist at FNB Commercial Property Finance
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