PROPERTY BAROMETER FNB City of Cape Town House Price Indices

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1 19 July 2017 MARKET ANALYTICS AND SCENARIO FORECASTING UNIT JOHN LOOS: HOUSEHOLD AND PROPERTY SECTOR STRATEGIST LIZE ERASMUS STATISTICIAN The information in this publication is derived from sources which are regarded as accurate and reliable, is of a general nature only, does not constitute advice and may not be applicable to all circumstances. Detailed advice should be obtained in individual cases. No responsibility for any error, omission or loss sustained by any person acting or refraining from acting as a result of this publication is accepted by Firstrand Group Limited and / or the authors of the material. PROPERTY BAROMETER FNB City of Cape Town House Price Indices The 2 most expensive markets, the Atlantic Seaboard and City Bowl, remain the strongest regions, but will certain more affordable markets begin to benefit from a search for relative affordability? Our 2 nd quarter 2017 City of Cape Town Sub-Regional House Price Indices still show some of the most expensive regions to be the strongest. But as home affordability deteriorates, we may be starting to see some of the more affordable regions come to the fore price growth-wise. Overall, though, our deeds data-driven City Of Cape Town House Price Index continued to show a gradually slowing price growth rate, albeit still very strong. THE OVERALL CITY PICTURE Using Deeds Office Data, we compile a set of house price indices for key subregions within the City of Cape Town Metro using a repeat sales methodology. We have then rolled up this set of sub-regions into an overall City of Cape Town Metro House Price Index. In the 2 nd quarter of 2017, the City of Cape Town s estimated average house price growth rate remained in double-digit territory to the tune of 13.8% year-on-year. However, while still very strong, this year-on-year price growth rate represents the 5 th consecutive quarter of slowing from a 10-year high of 15.7% revised rate recorded in the 1 st quarter of First National Bank a division of FirstRand Bank Limited. An Authorised Financial Services provider. Reg No. 1929/001225/06

2 THE 2 MOST EXPENSIVE SUB-REGIONS REMAIN THE STRONGEST FOR NOW, BUT WILL SOME OF THE MORE AFFORDABLE REGIONS BEGIN TO GAIN APPEAL? 2 ND QUARTER 2017 KEY CAPE TOWN SUB-REGIONAL HOUSE PRICE GROWTH RATES The FNB City of Cape Town Sub-Regional House Price Indices still show widespread strength across much of the metro. However, 7 of our 12 defined sub-regions saw their year-on-year growth having slowed in the 2 nd quarter of Interestingly, too, is that certain of the major affordable regions have shown recent house price growth accelerations, perhaps highlighting the City s residential affordability challenges (and resultant search for more affordable homes) after a strong price inflation run in recent years. Our FNB Estate Agent Survey continues to point to 1 st time buyers in Cape Town battling to buy homes far more than in other major cities of the country. IN AND AROUND THE CAPE PENINSULA THE MARKETS ARE STILL VERY STRONG, BUT 3 OF THE 4 SUB-REGIONS IN QUESTION SAW SLIGHT SLOWING IN PRICE GROWTH IN THE 2 ND QUARTER hot. On the land-scarce Cape Peninsula, the 2 most expensive sub-regions in the City of Cape Town Metro, i.e. the Atlantic Seaboard and the City Bowl, continued to be the hottest markets in the Metro despite some mild price growth slowing. The Atlantic Seaboard average house price inflation rate moderated only very slightly, from a multi-year high of 30.1% year-on-year in the 1 st quarter of 2017 to 29.9% in the 2 nd quarter. The City Bowl has seen slightly more slowing, from its 22.7% year-on-year high in the 2 nd quarter of 2016 to 21.1% in the 2 nd quarter of this year, but it too remained red Slower, but still strong, are the Southern Suburbs with 14.7% year-on-year growth, and the Near Eastern Suburbs (including amongst others Salt River, Woodstock and Pinelands) with 13.5%. The latter region has seen a noticeable price growth slowing from a high of 18.4% year-on-year in the 3 rd quarter of We would expect a near term slowing in price growth in the City Bowl and Atlantic Seaboard, after major affordability deteriorations, and with some signs of foreign buyer interest in South Africa weakening mildly. But housing markets can gain a momentum of their own, with investors/buyers acquiring their enthusiasm for an area/region merely due to the recent rampant price growth in that region, something we could term recency bias or perhaps momentum bias. Land shortages in these areas can play a key role, but can only go so far in boosting price levels before demand dwindles. For the time being though, the Atlantic Seaboard and City Bowl remain the 2 hottest markets in the City of Cape Town and possibly even in the entire South Africa.

3 DOES THE WESTERN SEABOARD BENEFIT FROM ITS LOCATION AND RELATIVE AFFORDABILITY AS A PORTION OF MIDDLE-TO-HIGHER INCOME DEMAND LOOKS FOR GREATER AFFORDABILITY? A key question is where does housing demand go next as the affordability of the regions on or near to the Cape Peninsula deteriorates. The Northern regions of the City of Cape Town have generally been more affordable, but they have their own challenges in terms of being further removed from the key employment nodes in the Southern Suburbs and City Bowl, and with increasing congestion making commuting ever more challenging. The northern region which is potentially an appealing alternative is the Western Seaboard. It is the nearest of our 3 major northern regions to the City Bowl, Claremont and other business nodes, is relatively affordable for higher income households compared to the Peninsula regions, but also has an appealing lifestyle, being located on the Atlantic coastline. And recently, we ask the question as to whether we have just started to see the Western Seaboard region outperform others in the northern areas as a result of its competitive locational advantage highlighted above? The Western Seaboard (Blouberg-Milnerton-Melkbos) average house price growth rate was estimated to have accelerated to 14% year-onyear in the 2 nd quarter of 2017, up from 13.4% in the final quarter of By comparison, the further removed Durbanville-Kraaifontein-Brackenfell region has slowed to growth of 6.8% (from 14% in early-2016), while the Bellville-Parow and Surroundings region has slowed to 8.3% growth (from 12.6% in late-2015). CERTAIN MORE AFFORDABLE REGIONS CAN LAG THE CYCLE, AND HAVE SHOWN ACCELERATIONS OF LATE In a relative boom period, one can often see the higher-priced sub-regions leading the cycle, but as their affordability becomes a mounting challenge the search for relative affordability can turn a portion of housing demand in the direction of more affordable sub-regions. This can cause the more affordable regions to lag the cycle, with their house price growth accelerating at a slightly later stage. It is possible that this is what we have begun to see in Cape Town s major affordable regions, i.e. the Cape Flats and the Elsies River- Blue Downs-Macassar Regions. The former region s year-on-year house price growth has accelerated for 5 consecutive quarters from 10.4% in the 1 st quarter of 2016 to 12.5% by the 2 nd quarter of The latter has reached 13.7% average price growth by the 2 nd quarter of 2017, having accelerated for 7 consecutive quarters from 5.4% in the 3 rd quarter of 2015.

4 1 ST TIME BUYING AND AFFORDABILITY IN CAPE TOWN DETERIORATES FURTHER The evidence of mounting Cape Town affordability challenges continues to come from our FNB Estate Agent Survey which, for the 1 st 2 quarters of 2017 showed a very low estimate of 1 st time buyer levels in the City of Cape Town. Whereas the National Average estimate is that 1 st time home buyers amounted to 21% of total home buyers in the 1 st half of 2017, Cape Town s estimate was a far lower 6.64%, having deteriorated steadily from an average of 18.4% in We believe that this extremely low estimate is reflective of a significant affordability deterioration in recent years in the City of Cape Town Metro. This affordability challenge could conceivably contribute to some strengthening in more affordable sub-regions with the metro. ATLANTIC SEABOARD AND CITY BOWL ASIDE, THE PATTERN OF STRONGEST PRICE GROWTH IN AND AROUND THE PENINSULA HAS BECOME LESS CLEAR Stacking up all of the regions next to each other, the Atlantic Seaboard region remained the one with the strongest house price growth in the 2 nd quarter of 2017 at 29.9% year-on-year. This was followed by the 21.1% of the City Bowl. These 2 regions were the clear top performers in the 2 nd quarter. However, whereas in previous reports we saw the other 3 of the top 5 being in or around the Cape Peninsula, the pattern has become less clear. The Southern Suburbs region did take 3 rd spot by a very small margin with 14,7% year-on-year price growth. But coming into the top performer mix was the Western Seaboard (Blouberg-Milnerton-Melkbos) region in 4 th spot with 14% price growth. Thereafter, the far more affordable region of Elsies River-Delft-Blue Downs was in 5 th spot with 13.7% year-on-year average price growth.

5 LONGER TERM PRICE GROWTH TRENDS 5-YEAR CUMULATIVE GROWTH RATES A look at the longer term big picture shows the strongest performance to have been clearly in and near to the Cape Peninsula. We calculate a 5-year cumulative house price growth rate by sub-region, over the period 2 nd quarter 2012 to 2 nd quarter Over this period, all 5 of the top performing sub-regions were the ones closest to the Cape Peninsula s mountainous areas. Leading the pack was the Atlantic Seaboard, with estimated cumulative price growth of 143.1% over the period, followed by the City Bowl with 114.2%, City Near Eastern Suburbs with 92.6%, Southern Suburbs with 84.8%, and Southern Peninsula with 73.2%. CONCLUSION Although the City of Cape Town has seen some mild slowing in average house price growth over the past 5 quarters, at 13.8% year-on-year this market remains very strong. Slowing growth in the 2 nd quarter of 2017 has taken place in 7 of 12 regions of the City. In the 2 nd quarter of 2017, the top 5 growth regions are no longer all those on or nearest to the Cape Peninsula. The 2 top performers, i.e. the Atlantic Seaboard and the City Bowl are on the Peninsula. But certain more affordable regions a little removed have started to move into the top 5 performers in terms of price growth, notably the Western Seaboard, a relatively affordable region for middle to higher income households looking for the next best thing from a lifestyle and commuter location. In addition, we have seen recent accelerations in the affordable regions of the Cape Flats as well as the Elsies River-Blue-Downs-Macassar sub-region. Such affordable regions can lag the overall cycle.

6 CITY OF CAPE TOWN SUB-REGION HOUSE PRICE PERFORMANCE SUMMARY TABLE Quarterly year-on-year percentage change Q Q Q Q Cumulative 15- year growth NOTES: AREA COMPOSITION OF THE CITY OF CAPE TOWN SUB-REGIONAL HOUSE PRICE INDICES Cumulative 5- year growth CT METROPOLITAN ROLL UP 15.22% 14.80% 14.34% 13.82% % 77.61% Atlantis - Mamre -3.12% -5.67% -7.59% % % 27.21% Mitchells Plain-Eerste Rivier 9.01% 10.46% 12.22% 13.65% % 49.86% Bellville and Surrounds 10.41% 9.40% 8.82% 8.34% % 52.87% Western Seaboard 13.78% 13.36% 13.39% 13.96% % 68.13% North Eastern Suburbs 12.00% 10.33% 8.52% 6.77% % 60.59% Southern Peninsula 14.31% 14.42% 13.36% 12.15% % 73.25% Hottentots Holland 12.06% 12.41% 12.80% 12.81% % 56.53% City Bowl 22.57% 22.17% 21.75% 21.07% % % Atlantic Seaboard 24.12% 28.01% 30.14% 29.93% % % City Eastern Suburbs 17.74% 16.96% 15.76% 13.53% % 92.60% Southern Suburbs 14.29% 14.04% 14.30% 14.72% % 84.77% Cape Flats 10.81% 11.43% 12.04% 12.53% % 56.61% Main Areas Included in Each Sub-Regional House Price Index Former Townships Atlantis-Mamre Elsies River-Blue Bellville-Parow Downs-Macassar and Surrounds Blouberg- Milnerton- Melkbosstrand Durbanville- Kraaifontein- Brackenfell Southern Peninsula Somerset West- Strand-Gordons Bay Guguletu Atlantis Belhar Bellville Blouberg Brackenfell Cape Point Gordons Bay Khayelitsha Mamre Blackheath Goodwood Melkbosstrand Durbanville Fish Hoek Sir Lowrys Pass Langa Blue Downs Kuils River Milnerton Kraaifontein Kommetjie Somerset West Nyanga Delft Parow Noordhoek Strand Eerste River Scarborough Elsies River Simon's Town Macassar Matroosfontein

7 City Bowl Atlantic Seaboard Near Eastern Suburbs Southern Suburbs Cape Flats City of Cape Town Metro House Price Index Foreshore Bantry Bay Rugby Bishopscourt Buckingham V & A Waterfront Mouille Point Lagoon Beach Steenberg Golf Es Wetton Zonnebloem Clifton Kensington Silwersteen Estate Rondebosch East De Waterkant Camps Bay Maitland Claremont Ottery East Cape Town City C Bakoven Salt River Newlands Lansdowne Gardens Fresnaye Woodstock Silvertree Estate Southfield Tamboerskloof Sea Point Maitland Garden VTokai Heathfield Devil`s Peak EstateGreen Point Oude Molen VillageRondebosch Retreat Vredehoek Three Anchor Bay Pinelands Meadowridge Lavender Hill University Estate Hout Bay Windermere Mowbray Plumstead Schotschekloof Westlake Elfindale Walmer Estate Wynberg Nerissa Estate Oranjezicht Observatory Ottery Bergvliet Kenilworth Royal Cape Diep River Rosebank Kirstenhof Dreyersdal Dennendal Forest Glade Constantia Muizenberg Ferness Coniston Park Otyhouse Estate Edward Crawford Sunlands Yorkshire Estate Pinati Glen Valley Romp Vlei Belthorn Estate Fairways Brooklyn Romp Vallei Glen View Penlyn Estate Eden Klein Frere Estate Turf Hall Turf Hall Estate Steenberg Sheraton Park Cafda Village Seawinds Athlone Athlone Grassy Park Mitchells Plain Philippi Guguletu Khayelitsha Langa Nyanga Roll-up of all City of Cape Town sub-regions