Analysing the affordability of SA’s residential property market
South Africans continue to tighten their belts as the pressure of rising interest rates, inflation, and other varying economic factors put household income under strain.
This puts the affordability of national residential property under the spotlight.
However, while (in nominal terms) national house price inflation remains positive (+1.9% in September 2022), the national average purchase price is down among first-time homebuyers. The price of properties purchased by this demographic registered a third consecutive decline in September 2022 (down 3.5%), reflecting first-time homebuyers’ sensitivity to interest rate increases.
Breakdown of the most and least affordable regions in SA
Regional house price inflation for the year to 30 September 2022 is broken down as follows:
• Gauteng South and East: +7.3%
• Eastern Cape: +5.7%
• Gauteng North and West: +1.8%
• KwaZulu Natal: +1.4%
• Western Cape: -2.1%
Interestingly, properties in Gauteng’s South and East Rand continue to register robust growth in prices, despite this region’s average house purchase price being the lowest at R1 183 032. The Western Cape, on the other hand, has the highest average purchase price in the country, but it is the only major region to report house price deflation.
After peaking in March 2022 at R2.05 million, the average purchase price of properties purchased in the Western Cape eased to R1.66 million in September—with purchase prices over the year to 30 September 2022 registering a decline of 2.1% compared to the same period last year.
In Gauteng North and West, the average purchase price of properties purchased this year (to 30 September 2022) is pinned at R1 551 273, while in the Eastern Cape and KwaZulu Natal it sits at R1 490 898 and R1 337 229 respectively.
Analysing the price-to-income ratio in SA
Examining property prices in isolation reveals only one side of the story, because the price of a home is not the same as the relative affordability of a home. One way to measure the affordability of homes is to look at the price-to-income ratio.
Here, the nominal house price is divided by the nominal disposable income per head. This means that in a particular region, homes may be more expensive, but incomes may also be higher—thus making the homes there more affordable.
In the Western Cape, for instance, the average purchase price of properties purchased from January to September 2022, compared to the same period in 2019, shows an increase of 6.1%.
The average gross income of applicants has, however, increased by 17.5% over the same time period—suggesting that on average, the homes purchased this year are almost 10% more affordable than those purchased during the same period in 2019.
Affordability has also improved marginally in the Gauteng North and West region, as the average income of home loan applicants increases at a slightly faster pace than that of the average purchase price.
However, the same cannot be said for homes in the Eastern Cape (where house prices of homes purchased increased by 18.5% during the year to 30 September 2022, compared to the same period in 2019) and, particularly, in Gauteng South and East Rand (tracking a house price increase of 21.7%).
In both these regions, this rise in house prices purchased has outpaced growth in average gross incomes, resulting in a relative deterioration in affordability in these housing markets.
Affordability amongst first-time homebuyers per region
Gauteng is home to the largest percentage (20.3%) of potential first-time homebuyers (mostly young adults aged between 30 and 39 years), while the Eastern Cape has the lowest. Across the regions, but most notably in the coastal provinces, the average first-time homebuyer’s purchase price has decreased.
Interestingly, Gauteng South and East—where first-time buyers make up more than half of applications received—registered the lowest average purchase price year to date. This makes it the second most affordable region for homebuyers, despite a slight deterioration in affordability.
Conclusion and outlook
Overall, despite varying levels of affordability across the country, the market remains stable—and there are still deals to be had for those who want to capitalise on a generous lending environment and shop around using a home loan comparison service.
As interest rates begin to stabilise in 2023, we expect to see activity in the market improve, especially among first-time homebuyers.
WRITTEN BY RHYS DYER
Rhys Dyer is the chief executive officer of ooba Group.
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted. (E&OE)