Why later might just prove to be too late

Pro­jected house prices in 2050 are a clear in­di­ca­tion as to why it is bet­ter to buy prop­erty sooner rather than later, writes Michelle Swart

Business Day - Home Front - - HOMEFRONT -

ANY­ONE in­volved in real es­tate will tell you that the best time to buy is now. This opinion can be linked to the char­ac­ter­is­tics of the prop­erty mar­ket in a spe­cific area at a cer­tain time – and let’s face it, with in­ter­est rates at a 37year low, now is pretty good — or to the fact that in­evitable growth in prop­erty prices over time means that putting off the de- ci­sion is al­most cer­tain to mean you will pay more down the line.

Werner Sch­ef­fer, in-house data re­searcher for MSP De­vel­op­ments, has some fig­ures that re­ally drive this point home. “In 1966 the av­er­age price for a house in SA was R9 516. To­day, 45 years down the line, it is av­er­ag­ing just over R1m. Over this term prop­erty prices his­tor­i­cally grew at an av­er­age rate of 11,25% a year.

“I am sure if I had told some­one back in the 1960s that their prop­erty would be worth more than R1m in 2011, they prob­a­bly would have laughed and asked what I was smok­ing. To­day the facts speak for them­selves. Now those of us here in 2011 must deal with our own in­credulity, since if this trend con­tin­ues un­til 2050, then the av­er­age house in SA will cost R73,2m! If we were to cut this trend by half, then the av­er­age house will still cost R36,6m.

“The bond re­pay­ment on a loan of R73,2m equates to a monthly in­stal­ment of R660 000, cal­cu­lated at a prime in­ter­est rate of 9% over 20 years. Even more fright­en­ing is the fact that you will need to earn a salary of R2,2m a month to qual­ify for this loan. If salaries were only to in­crease an­nu­ally by an in­fla­tion rate of roughly 5%, then you would need to earn R330 000 a month cur­rently in or­der to be able to make that pur­chase of an av­er­age house in 2050.

“Clearly the an­swer is sim­ple — the best time to buy prop­erty is in­deed now. His­tor­i­cally the rate at which prop­er­ties have grown has sur­passed the rate at which our salaries grow, and this gap will con­tinue to get big­ger.”

MSP Group GM Jaco Maritz, says: “For the av­er­age South African, even if they want to get into the hous­ing mar­ket as soon as they can, this has been marred by a lack of qual­ity, af­ford­able hous­ing projects and fi­nanc­ing. MSP’S aim is to fa­cil­i­tate com­mu­nity up­lift­ment by pro­vid­ing su­pe­rior qual­ity, com­pet­i­tively priced hous­ing. For ex­am­ple, of the 3 511 res­i­den­tial units that will make up Buh-rein Es­tate be­tween Dur­banville and Kraai­fontein, we have en­sured that 92% will come to mar­ket in the mid­dlein­come hous­ing bracket priced at R850 000 and un­der.”

Says MSP CEO, Ri­aan Roos: “MSP’S pri­mary tar­get is the pro­vi­sion of hous­ing for the en­try to mid­dle-in­come buyer. Fund­ing and de­vel­op­ment of this type of hous­ing is key to re­solv­ing one of the most im­por­tant is­sues af­fect­ing the ma­jor­ity of South Africans.”

These Knot­ting Hill apart­ments in Buh-rein Es­tate were re­leased last week by MSP De­vel­op­ments and cur­rently cost R479 900. In 2050, 39 years away, and based on the as­sump­tion that his­tor­i­cal growth trends will con­tinue at 11,25% a year, such an...

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