MAIN IMAGE: Rhys Dyer, CEO of ooba Home Loans and Research economist Dr. Roelof Botha
Editor
The daily headlines are full of concern about the increased pressure households are facing during the current economic downturn. Affordability in the local residential property market remains of crucial concern to homebuyers. “Affordability, in this context, is determined by how comfortably a homebuyer can afford their monthly repayments relative to their gross monthly income (income before tax and monthly expenses),” explains Rhys Dyer, CEO of ooba Home Loans.
He adds that while many South African households are under financial pressure, debt levels among ooba’s homebuyers have yet to reach unsustainable levels. “Home loan instalments as a percentage of gross income increased to only 20.3% in Q1 ’23, comfortably below the industry benchmark of 30% of gross income.”
“Affordability continued to deteriorate, reaching a peak in Q1’22 before beginning to gradually improve due to the growth in national average incomes and slow House Price Inflation (HPI), which is a result of the oversupply of property in certain regions and a sluggish economy,” says Dyer.
“Our latest data illustrates that house prices rose by 17.4% between Q1 ‘19 and Q4 ‘22, while average earnings, as measured by Statistics SA, increased by 22.6% for the same period. This resulted in a net improvement in housing affordability, despite the ongoing market volatility over the four-year period,” he adds.
Research economist Dr. Roelof Botha, writing in the June BetterBond Property Brief concurs, noting that while the cost of living has increased over the past two years, income has also gone up, according to the June 2023 BetterBond Property Brief. “We attribute this to a scarcity of high-level skills, especially since the economy started recovering from the Covid-19 pandemic,” writes research economist Dr. Roelof Botha. For buyers aged 31 to 40, the average monthly income has increased from R45 000 to nearly R55 000.
The other encouraging indicator, according to Dr. Botha, is that of the 1.2 million new employment opportunities created between Q1 2022 and Q1 2023, most went to the two age groups – 25 to 34 and 35 to 44 – that yield the most first-time buyers.
Although youth unemployment remains worryingly high, more than 250 000 new jobs were created in South Africa during Q1 2023 alone, Dr Botha points out. “A combination of substantial formal sector job creation during Q1 2023 and the forecast downward trend in the inflation rate, could herald relief for home buyers and a consolidation in the property market over the coming months,” he concludes.
Good news for all five major regions
All five of South Africa’s major regions showed improved affordability when comparing the first four months of 2019 to the same period in 2023, with ooba Home Loans applicants in Kwa-Zulu Natal second only to the Western Cape for the highest growth in gross income (+32.4%) relative to the prices of homes that were bought by these applicants (+17.8%).
“The Eastern Cape registered the strongest growth in the prices of houses by applicants in 2023, relative to 2019 (+23.4%) but one of the slower increases in applicant income (+30.7%), thus registering only a modest improvement in affordability between January to April 2019 and the same period in 2023,” says Dyer.
Western Cape shows the greatest improvement in income and affordability
SOURCE: ooba Home Loans
While the Western Cape is well known for having some of the most expensive property in the country – particularly in sought-after areas such as the Atlantic Seaboard and Winelands – it is also the region that has seen the greatest improvement in affordability levels.
“The reason for this notable improvement becomes clear when considering that the average purchase price of properties purchased by ooba Home Loans customers in the Western Cape has only risen by a mere 1.9% in 2023, versus those purchased in 2019, while the average income of applicants has increased by a staggering 44.5% over the same period,” comments Dyer. “The low growth in the average value of properties purchased in the region is closely linked to the growth in demand for buy-to-let properties in Cape Town, as investors generally buy in the lower to mid purchase price segments.”
“While it’s difficult to pinpoint the exact cause of this significant increase in income in the Western Cape, we believe that some of it can be attributed to semigration and international investors.”
Semigration not just to coastal areas
The top 3 areas in South Africa, in terms of the average home loan value for first-time homebuyers, over the past 12 months have been the Western Cape, Greater Pretoria, and Mpumalanga, according to BetterBond data. Notably, Mpumalanga has overtaken KZN and the north-western suburbs of Johannesburg during this time, in a trend that could indicate that semigration is spreading farther and wider than only to coastal provinces.
Buyers taking advantage of low HPI
The combination of increased income levels and a relatively low growth rate in the price of properties purchased by applicants throughout the country has had a significant impact on the purchasing power of homebuyers, indicating that there is still scope for affordability at the current level of interest rates.
“While a higher interest rate environment is not without its challenges, the slower growth in property prices coupled with relatively strong consumer affordability and good availability of financing means that there are still plenty of good investment opportunities to be found in South Africa’s residential property market” concludes Dyer.
