Prices out­strip abil­ity to pay

Finweek English Edition - - Letters -

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.

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