Av­er­age house price fore­cast to reach R73.2m

Weekend Argus (Saturday Edition) - - PROPERTY -

ANY­ONE in­volved in real es­tate will tell you that the best time to buy prop­erty is now.

Back in 2011, Werner Sch­ef­fer, cus­tomer re­la­tions man­ager for Multi Spec­trum Prop­erty (MSP), drove this point home by show­ing that prop­erty prices had his­tor­i­cally grown at an av­er­age rate of 11.25% per an­num since 1966 (when the av­er­age price for a home in South Africa was R9 516).

In 2011, 45 years down the line, the av­er­age house price was just over R1 mil­lion.

“If this trend con­tin­ues un­til 2050, the av­er­age house in South Africa will cost R73.2m. If we were to cut this trend by half, then the av­er­age house will still cost R36.6m,” says Sch­ef­fer.

MSP took an­other look at house price growth, to see whether we were still set for that R73.2m price tag in 2050.

“We have 50 full years of house price growth to anal­yse, and if you look at what has hap­pened over the past five years – es­pe­cially in the Western Cape – we are still firmly on track to see those mad prices in 2050,” says Sch­ef­fer.

“While no one has a crys­tal ball to see ex­actly what might hap­pen in fu­ture – and there are var­i­ous fac­tors that might play a role – if the past 50 years of statis­tics are any­thing to go by, the prop­erty mar­ket is in for a very in­ter­est­ing ride.

“Prop­erty re­mains an in­vest­ment ve­hi­cle which can re­alise re­mark­able re­turns. It is an as­set class that out­per­forms many other in­vest­ments over time as it an­swers a ba­sic hu­man need, namely shel­ter.

“If we look at bond re­pay­ments on that av­er­age priced home of R73.2m in 2050, it equates to a monthly in­stal­ment of R730 536 at the cur­rent prime in­ter­est rate and cal­cu­lated over a 20-year term. What is more fright­en­ing is that you will need to earn a monthly salary of R2 435 120 to qual­ify for that amount.

“This is only in 33 years’ time – but if my salary only in­creases an­nu­ally by roughly 7.5%, what should I earn to­day to be able to buy that av­er­age home in 2050? It works out to al­most R225 000 per month.”

MSP CEO Ri­aan Roos 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 yet af­ford­able res­i­den­tial projects and fi­nanc­ing. “As per­cent­ages on yearon-year growth show, af­ford­abil­ity is get­ting worse for those look­ing to buy, and es­pe­cially for first-time home­buy­ers.”

Sch­ef­fer says: “When is the best time to buy prop­erty is sim­i­lar to the ques­tion about when is the best time to plant a tree. The an­swer re­mains ‘yes­ter­day’ – and if not yet done, then to­day.

“The rate at which prop­er­ties have grown has sur­passed the rate at which our salaries grow an­nu­ally, and this gap will con­tinue to get big­ger. Fail­ure to make all ef­forts to buy as soon as pos­si­ble may leave you stuck in a ‘rental trap’, where it will be­come al­most im­pos­si­ble for the av­er­age South African to en­ter the prop­erty mar­ket.”

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