Prices outstrip ability to pay
WE SEEM to forget the current problems in South Africa’s residential property market are in reality not caused by the current financial crisis overseas: they’re simply an accumulation of price rises for residential property outstripping the buyer’s ability to pay.
I’m not 100% sure of the exact amounts but I’m sure you can redo the following calculation – but the conclusion will be the same. That the total accumulated price rise of a house since 2000 has been in the region of 340%, while the accumulated inflation (and salary) increase over the same period has been in the region of 140%. In other words, residential properties are in reality 200% more expensive over the same period. That’s the main reason for the slowdown in demand – unaffordability.
I’m delighted to see banks are trending back to requiring deposits. It’s a much healthier situation. We’ve simply got out of the habit of saving. Buyers should be required to put down a “real” 20% deposit AND all the transfer costs. I say real because inflating the price and then having the buyer pay the deposit isn’t the “real” thing. I also believe banks should be required to show the balance with every deposit paid to encourage homeowners to pay off capital.