The cost of homes in Gauteng has increased this year. Picture: Lastroyalehelp/Pixabay
South Africans continue to tighten their belts as the pressure of rising interest rates, inflation and other economic factors put household income under strain.
And this places the affordability of residential property under the spotlight.
While, in nominal terms, national house price inflation remains positive (+1.9% in September 2022), Rhys Dyer, chief executive of ooba Group, says that the national average purchase price is down among first-time homebuyers.
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“The price of properties purchased by this demographic registered a third consecutive decline in September 2022 (down 3.5%), reflecting first-time homebuyers’ sensitivity to interest rate increases.”
He breaks down the affordability of homes in some of South Africa’s major provinces. House price inflation for 2022 so far is:
“Interestingly, properties in Gauteng’s South and East Rand continue to register robust growth in prices, despite this region’s average house purchase price being the lowest at R1 183 032. The Western Cape, on the other hand, has the highest average purchase price in the country but it is the only major region to report house price deflation”.
After peaking in March 2022 at R2.05 million, Dyer says the average purchase price of properties in the Western Cape eased to R1.66m in September – with purchase prices over the year-to-date registering a decline of 2.1% compared to the same period last year.
“In Gauteng North and West, the average purchase price of properties purchased this year (to date) is currently pinned at R1 551 273, while in the Eastern Cape and KwaZulu-Natal it sits at R1 490 898 and R1 337 229, respectively.”
Price-to-income ratio in SA
As Dyer explains, examining property prices in isolation reveals only one side of the story “because the price of a home is not the same as the relative affordability of a home”. However, one way to measure the affordability of homes is to look at the price-to-income ratio.
“Here, the nominal house price is divided by the nominal disposable income per head. This means that in a particular region, homes may be more expensive but incomes may also be higher – thus making the homes there more affordable.”
He says that, in the Western Cape, for example, the average price of properties purchased for January to September 2022, compared to the same period in 2019, shows an increase of 6.1%.
“The average gross income of applicants has, however, increased by 17.5% over the same time period, suggesting that on average, the homes purchased this year are almost 10% more affordable than those purchased during the same period in 2019.”
Affordability has also improved marginally in Gauteng North and West as the average income of home loan applicants increases at a slightly faster pace than that of the average purchase price. The same cannot be said for homes in the Eastern Cape though. Here, house prices of homes purchased have increased by 18.5% so far this year from the same period in 2019. Gauteng South and East Rand have recorded house price increases of 21.7%.
“In both these regions, this rise in house prices purchased has outpaced growth in average gross incomes, resulting in a relative deterioration in affordability in these housing markets.”
Affordability amongst first-time buyers per region
Dyer says Gauteng is home to the largest percentage (20.3%) of potential first-time home buyers – namely young adults aged between 30 and 39 years, while the Eastern Cape has the lowest.
Across the regions, but most notably in the coastal provinces, the average first-time buyer’s purchase price has decreased.
“Interestingly, in Gauteng South & East, where first-time buyers make up more than half of applications received, registered the lowest average purchase price year to date and, despite a slight deterioration in affordability, is the second most affordable region for buyers,” he says.
Despite varying levels of affordability across the country, the market remains stable and there are still deals to be had for those who want to capitalise on a generous lending environment and shop around using a home loan comparison service.
“As interest rates begin to stabilise in 2023, we expect to see activity in the market improve, especially among first-time buyers.”
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