Hot property, cold dreams: Cape's soaring home prices freeze out first-time buyers
Houses are simply getting more expensive – positive for sellers – yet leaving prospective first-time buyers out in the cold and stuck in the rental market.
Image: Unsplash
Houses are simply getting more expensive – positive for sellers – yet leaving prospective first-time buyers out in the cold and stuck in the rental market.
Statistics South Africa's latest data shows that residential property increased by a whopping 5.2% in January from the prior year, faster than the official inflation rate of 3.2% in that month.
There were, however, differences as to where prices increased the most, with those looking to buy in the Western Cape set to pay a hefty 8.5% more, while property in Johannesburg was less popular, with price points growing at only 2.3%.
Put another way, a property that cost R1 million a year ago would have been sold at a price point of at least R1 023 000 in Johannesburg and R1 085 000 in Cape Town – stripping out any compounding of inflation or other factors.
Denese Zaslansky, CEO of the FIRZT Realty group, explained, 'at the current average home price of around R1.6m, for example, the gross monthly income required to qualify for a home loan is around R54 200, which is R3 600 less than it was at this time last year because of the rate cuts.
'But if prices continue to rise even at an average of around 5% a year… buyers who delay now will not only have to contend with a bigger monthly bond repayment but will also need to earn about R2 700 more a month to qualify for their home loan. They will thus lose most of the advantage of the recent rate decreases,' said Zaslansky.
Berry Everitt, CEO of the Chas Everitt International property group, told IOL that, while these increases are positive for those who are selling their homes at this stage, they are 'also steadily creating a shortage of homes that are affordable for first-time buyers and investors, despite the recent interest rate cuts'.
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The South African Reserve Bank started incrementally cutting interest rates last September in 25 percentage point increments to its current level of 10.75% at the prime rate.
Zaslansky noted that 'demand has strengthened with every rate decrease since September last year, stock is drying up rapidly in popular areas and we have seen a 38% increase in sales and an average 6% price increase in our markets in the past six months'.
Everitt adds that 'we worry that there are many young people who are earning well but still in danger now of being priced out of the formal market, and thus also out of their future opportunities to build equity in real estate and upgrade as their employment and financial prospects improve'.
Advising anyone who can afford to buy or invest at current prices to do so without delay, Everitt says they otherwise 'risk finding themselves left out in the cold'. Zaslansky concurred: 'This means that there is no time to waste for prospective buyers and investors.'
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