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Monday Jun 19, 2017

Skills and purchasing power continue their move south

Last year was another bumper one for the Western Cape in terms of strong net inflows of repeat homebuyers from the rest of the country, a trend that takes skills and purchasing power to that region's economy, says John Loos, FNB's household and property sector strategist.

"This trend has become nothing short of spectacular, measuring 15.7% of the province's repeat buying, having accelerated steadily since 2009, and now dwarfing the net migration rates of the other eight provinces," he says.

This "semi- gration" saw the Western Cape lifting its outperformance in terms of its ability to attract repeat homebuyers from other provinces, while retaining its own residents, to new heights.

"A competitive advantage, from a point of view of attracting skilled labour, is not only about a region's ability to attract inward migration, but also about retaining current residents. Here, the Western Cape now shows superiority too, with only 7.6% of its repeat homebuyers leaving the province in 2016."

By comparison, FNB estimates KwaZulu-Natal's percentage at 15.2% and Gauteng at 16.2%.

This rising trend in the Western Cape since 2011 is partly due to the lagged response to the economic growth recovery that started in 2009 and continued to 2011. But the trend continued to last year despite five years of broad slowing in economic growth.

"This, we believe, is a little more than a lagged response to earlier economic recovery. It also, in part, represents a desire on the part of the affluent to relocate for quality of life, some moving for employment prospects, but many relocating for retirement purposes."

By comparison, the country's largest economic province, Gauteng, saw a marked deterioration in its net outflow percentage of repeat homebuyers, and only Mpumalanga had a worse net outflow percentage.

"The trend should be of concern for Gauteng as it may battle to maintain its status as the fastest-growing economy over the longer term should the net outflow of repeat buyers (along with their skills and purchasing power) continue to deteriorate. However, we don't believe Gauteng's situation is as bad as it appears because we believe high first-time buying rates in that region are in part reflective of a big economic opportunity that continues to attract young skilled labour market entrants moving to the region to start their careers. In addition, Gauteng's superior home affordability can boost such a young buyer inward migration."

The Western Cape, on the other hand, needs to be concerned with finding a solution to deteriorating home affordability.

This provincial economy is a services dominated one heavily reliant on skills attraction and retention. To sustain this net inflow of repeat homebuyers while retaining more financially constrained first-time homebuyers, the region has to find ways to use land more effectively (which would include densification with good urban planning) to create greater residential affordability, while finding a solution to rapidly mounting traffic congestion.

Loos believes it's possible that deteriorating home affordability in the Western Cape could see the Eastern Cape and KZN increase in popularity as coastal semi-gration destinations.

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