How much money the average house costs a first-time buyer in South Africa

 ·22 Mar 2016

The gradual deterioration of affordability in the residential property market looks set to continue in 2016, John Loos, household and property sector strategist at FNB Home Loans, said on Tuesday.

The home affordability picture deteriorated further in the fourth quarter of 2015, continuing a gradual deteriorating trend that began back around 2013.

He expects interest rates to gradually increase further and municipalities and utilities to continue their above-inflation tariff and tax increases. In addition, the household debt-service ratio is expected to rise further, driven higher by further interest rate hikes.

“But we are of the belief that not all of the measures of affordability will continue to deteriorate this year,” said Loos.

While he would expect rising interest rates to lift the bond instalment/per capita disposable income ratio higher next year, expected slowing house price growth could possibly end the rising trend in the average house price/per capita disposable income ratio, as we get into the anticipated real house price correction phase. This may also conceivably end the rising price-rent ratio.

According to Loos, house price inflation is far from strong, but has still outpaced slowing per capita disposable income growth in recent times. This has led to further recent deterioration in the average house price/per capita disposable income index as well as the instalment on a 100% bond on the average priced house/per capita disposable income ratios.

The home running cost-related affordability measures also continue their multi-year deterioration. The exception, however, is home maintenance and repairs affordability, which has actually improved since 2008.

Housing continued to become less competitively priced in 2015, out-inflating both consumer goods and services as well as rentals. The interest cost on household debt relative to disposable income also continued to rise in 2015.

This was due to interest rate hiking along with the higher-priced consumer-related forms of household credit still growing faster than the cheaper home loans category.Loos explained that a period of abnormally low interest rates in recent years has kept property still “temporarily” affordable.

This has meant that the loan instalment/per capita disposable income index is actually 5.8% below (more affordable than) the first quarter of 2001 level.

“Whereas the residential market has remained well balanced, translating into average house price inflation of 6.6% year-on-year for the fourth quarter of 2015 – which is still mildly positive in real terms – a deteriorating economy had seen nominal per capita disposable income growth slow to 4.2% by that stage,” said Loos.

Ooba also said on Tuesday that its property statistics for February indicate slower year-on-year house price growth trends emerging.

The average purchase price is up by 4.3% to R1.05 million, while the average purchase price of first-time buyers increased by 4.6% to R801,144.

“At 4.3%, growth in property prices is currently below the inflation rate, which translates to negative growth in real terms. The less buoyant property market correlates with expectations of slower real economic growth and rising interest and inflation rates, which affect both consumer and business confidence,” explained ooba CEO Rhys Dyer.

“The deceleration in property price growth rates can be seen in the month-on-month average purchase price, which is down -0.7%, while the average purchase price for first-time buyers recorded a nominal 0.1% increase.”


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