The water-crisis is slowing down the growth of property prices in Cape Town, according to new Standard Bank research.
“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,” said Standard Bank in a note by Siphamandla Mkhwanazi.
”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.”
The note suggested: “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.”
This research is one of the early signs that the Cape Town property market may be vulnerable to downward pressure because of the water crisis.
However, at this stage, Standard Bank is talking of an easing in property price inflation – rather than any actual fall in prices.
There will be downward pressure on prices if more and more properties are put on the market by people wishing to escape Cape Town, or if there is a slowdown in demand because of concerns about living in a City with water problems.