South Africa’s 833% house price pain

 ·8 Jul 2024

The average property price has increased by over 833% since South Africa became a democracy, significantly outpacing inflation over the same period.

This was revealed in Lighstone Property’s latest report, which focused on house price inflation and data from the Deeds Office from 1994.

According to the data firm, the current annual property inflation rate is 3.22%, and the monthly rate is 0.42%.

The annual property inflation for the low-value segment has increased to 12.7%. Meanwhile, other value bands have shown modest increases since May.

High-value properties saw a slight increase to 2.1%, mid-value properties to 3.5%, and luxury properties also to 3.1%.

On a provincial level, Lightstone noted that annual property inflation has remained steady in the Eastern Cape and Western Cape.

However, it has increased in Gauteng, North West, Northern Cape, and KwaZulu-Natal and has decreased in the Free State, Limpopo, and Mpumalanga compared to the previous month.

Compared with the national property inflation rate, the North West and Western Cape are the only provinces above the 3.2% benchmark.

Gauteng and KZN are below 1% (0.23% and 0.42%, respectively), while Limpopo is negative, at -1.14%.

Long-term view

While these price inflation numbers seem to be in line with or below inflation, the picture has changed dramatically over the last 30 years, or since democracy was established in 1994.

Lightstone’s data shows that the average nominal sale price has risen from just under R150,000 in 1994 to R1.4 million in the first quarter of 2024.

This represents an 833% increase over the 30-year period, which is 381 percentage points more than inflation over the same period (451.9%).

Put another way, a salary of R150,000 in 1994 would only be worth R840,000 today – R540,000 less than the R1.4 million house price growth.

This trend could be worse for some areas more than others.

While the 833% represents the price increase on a national scale, the increases are likely worse in coastal regions than inland regions due to a notable surge in foreign buyers and local semigration trends.

This was highlighted by FNB’s latest Property Barometer and House Price Index (HPI).

FNB stated that house price growth diverges significantly across South Africa’s major metros and other areas of the country.

Wide disparities are evident across regions, with larger non-metro regions seeing stronger house price growth relative to traditional metropolitan areas.

The bank said the rise in semigration has driven this growth, with many South Africans moving from the central, northern urban areas to coastal towns.

The West Coast has grown stronger over the past year, followed by Capricorn and the Garden Route.

Growth in house prices in these areas significantly outpaces larger metros, which have seen largely flat house price increases over recent years.

Durban’s prices have significantly decreased over the past year, with Johannesburg not faring much better and Pretoria’s prices remaining flat.

Coupling the increase in property prices and the high interest rates means fewer South Africans are buying homes (and the average age of a first-time buyer is nearing 40), while those who have bought a home and still owe on their loans are struggling to keep up with their repayments.

Since May 2023, with interest rates held at 15-year highs, it has cost those with bond repayments, on average, an extra R4,247 per month to cover their loans, which has put households under severe pressure.

According to data from TransUnion, the number of new home loans in the first quarter of 2024 increased by 6.7% compared to the previous year.

This growth is accompanied by a 6.2% decrease in the average value of new loans during the same period.

This shift indicates a rise in the more affordable segments of the South African property market, attributed to individuals downgrading due to financial strain and an influx of first-time home buyers.

Despite the decrease in new loan amounts, the total outstanding home loan balances have risen by 7.6% year over year.

Additionally, home loan delinquencies have worsened by 140 basis points compared to the previous year.

Read: Homeowners in South Africa are shooting themselves in the foot

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