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
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 apartment will cost R30,7m. The bond repayments on that price in 2050, based on 9% (current rate) over a 20-year term, will be R275 000 a month. Your salary would have to be R920 000 a month in order to qualify for the loan.