Mid-income SA scores on housing

South Africans have it better than most, except for that whole exchange rate business

Housing in Hong Kong is among the most expensive in the world and prospective first-time homeowners have given up on any aspirations of acquiring a decent-sized home.

One new development in the city is setting a record for micro-apartments, which will be slightly less than 12m2 in size. Excluding the balcony, kitchen and bathroom, the living space will be a scanty 4.6m2 — about half the size of a standard parking space.

In Australia, furniture retailer Ikea’s 2017 catalogue, replete with sleeper couches, balcony gardens and nifty storage units, offers a glimpse into the reality of living in matchbox flats that many young professionals can only dream of owning, particularly in the exorbitantly priced Sydney housing market.

In the third least affordable city in the world, Vancouver, where no free standing house sells for less than C$1-million (R10-million), the high cost of housing is resulting in homelessness, according to a recent report.

In many places where interest rates are low, investors have piled into speculative investments such as property in search of higher returns. Homeowners have also been able to buy more expensive properties as a result of lower interest rates. Higher demand has sent prices soaring.

South Africa’s real estate market appears to be rosier than in many developed and emerging markets, although experts warn that a variety of factors should be considered when determining property affordability.

According to Numbeo.com, South Africa’s house price-to-income ratio (median house prices to median disposable household income) is the third-best in the world, ranking behind the United States and Saudi Arabia. Venezuela, Syria and Hong Kong fare the worst. housing supply and on interest rates.

Furthermore, he said, “one must also take into account factors like confidence levels, the outlook for the economy going forward and how will that influence the property market”.

In its most recent findings on housing affordability, FNB found, according to two affordability indices, the picture had continued to improve in the final quarter of last year.

One index looks at the price in relation to disposable income, and the other at the loan instalments in relation to disposable income.

Both affordability indices were driven lower by a slow average house price inflation rate of only 1.8%, which had dropped from 7.2% year on year in the final quarter of 2015. But disposable income per person grew by 5.8% year on year as at the final quarter of 2016, FNB said.

Simultaneously, there has been no interest rate movement since the first quarter of 2016, meaning that interest rates have played no role in the improved loan instalment measure.

But following President Jacob Zuma’s Cabinet reshuffle and South Africa’s debt subsequently being downgraded to junk, it is feared that rising interest rates could affect the affordability of housing.

“What has happened recently created a lot of uncertainty and it is not clear how a lot of these things will play out,” Du Toit said.

In terms of inflation, the rand exchange rate is now the biggest risk to the economy.

The currency weakened from R12.30 to the dollar before rumours of the reshuffle took hold to R13.90 after Fitch was the first to downgrade South Africa’s local and foreign debt to junk.

The Reserve Bank, which uses interest rates to target inflation, is unlikely to be in a position to cut interest rates any time soon. “They are likely to remain for some time, at least at these levels for the rest of the year,” Du Toit said.

If costs rise and cut into consumption expenditure — an important driver of economic activity — gross domestic product growth for the year will be hit, Du Toit said.