The most affordable areas for first-time homebuyers in South Africa right now

 ·23 Oct 2022

While national house price inflation remains positive, the national average purchase price is down among first-time homebuyers in South Africa, says Rhys Dyer, the CEO of property group Ooba.

As rising interest rates alongside inflation and other external economic factors put households under strain – the affordability of residential property comes under the spotlight, Dyer said.

He noted that in September, house price inflation was sitting at 1.9% and young adults aged between 30 and 39 years who were looking to purchase their first house had their third consecutive decline in the price of properties purchased. This indicates sensitivity to interest rate increases, said Dyer.

Ooba broke down regional house price inflation for the year to date as follows:

  • Gauteng South and East: +7.3%
  • Eastern Cape: +5.7%
  • Gauteng North and West: +1.8%
  • KwaZulu Natal: +1.4%
  • Western Cape: -2.1%

Gauteng’s South and East Rand has the lowest average house price at R1,183,032, said Dyer. The area has, however, interestingly registered a continual growth in prices.

Gauteng is home to the largest percentage of potential first-time homebuyers in South Africa at 20.3%, while the Eastern Cape has the lowest.

The average purchase price of the property by a first-timer has decreased, most notably in coastal provinces; however, Gauteng South and East registered the lowest average purchase price – despite becoming less affordable.

Dyer said that looking at property prices in isolation does not paint an accurate picture of the affordability of a property market in a specific region.

He said that 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,” said Dyer.

he noted that in the Western Cape, for instance, the average purchase 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 the 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.

Dyer said the same could not be seen in the following areas, with the rise in housing prices purchased outpacing the average growth in income – reducing affordability:

  • Gauteng South and East Rand – a housing price increase of 21.7%
  • Eastern Cape – a housing price increase of 18.5%

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, said Dyer.

“As interest rates begin to stabilise in 2023, we expect to see activity in the market improve, especially among first-time homebuyers,” Dyer concludes.

The most expensive area

According to Dyer, the Western Cape 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, the average purchase price of properties purchased 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,” he said.

“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.”

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