Bigger factor than water impacting Cape property market - economist

Cape Town - Although the water crisis in Cape Town could dampen sentiment in the property market, it would by no means be the only factor at play, John Loos, household and property sector strategist at FNB told Fin24 on Tuesday.

In his view, affordability actually is an even bigger factor at the moment. 

"The water crisis has to, one would guess, impact the Western Cape economy. The big impact is, of course, on the agriculture sector, but probably on certain manufacturing industries as well," said Loos.

"Lack of water is bad for an economy and means a negative impact on job creation and household income. This then filters through to dampening the sentiment in the property demand. So, my guess would be that it will have a negative impact via the economic impact. There could maybe already be such an impact in agricultural areas outside the Cape Metro."

At the same time, he emphasises that, in his view, one cannot yet draw conclusions of the real impact of the water crisis on the Cape Town property market.

"Take into account that after a number of years of strong price growth, affordability is a problem in Cape Town and that dampens the market. This is already reflected in our recent first time buyers report as this category feels affordability challenges first," said Loos.

"So, affordability challenges are cooling the Western Cape property market and the drought is creating a negative impact on sentiment, but one can't say how much of a part each plays."

He explained that when a housing market has been strong for some time and affordability issues come to play, then usually demand slows as prices overshoot the market. Price inflation then slows until incomes catch up with it. Then demand strengthens again.

As for the semigration trend from other provinces - notably Gauteng - to the Cape the past few years, Loos said one cannot say there is or will be a reversal of the trend due to the water crisis.

At the same time, he thinks the pace of semigration will slow or might even have slowed already. Once again this would likely not be due to just one factor, but the water crisis and mostly affordability are the likely some of the  reasons.

In his view, alternative destinations for semigration to retire at the coast could benefit - for instance Port Elizabeth.

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