MAIN IMAGE: Grant Smee, Managing Director of Only Realty Property Group
Grant Smee
It’s a joke beloved by Baby Boomers and hated by Millennials: “The younger generation can’t afford to buy a home because they spend all their money on avocado toast and takeaway cappuccinos.” But while Millennials may be guilty of indulging in the occasional unnecessary treat, choosing to forgo Starbucks won’t change the fact that house prices across the globe are currently the most expensive they’ve ever been.
“The vast majority of young people aspire to be homeowners and see property as a sound investment and effective wealth creation tool,” says Grant Smee, Managing Director of Only Realty Property Group. “High levels of youth unemployment coupled with surging interest rates and the increased cost of living have left many people feeling demotivated and wondering whether homeownership is simply a pipe dream.”
This scenario is not unique to South Africa. US-based insurance company Zebra found that 68 out of 100 Americans could afford a home in 1960 but that by 2022, only 43 out of 100 could. However, the increasing cost of property hasn’t deterred all would-be young homebuyers, with many simply choosing to delay their purchase till later in life to ensure affordability.
British website Money.co.uk recently conducted a global study of first-time homebuyers (FTHB) from 25 countries to assess the average age, salary and price paid for their first property. As the first study of its kind, it gives a fascinating insight into how young buyers worldwide are climbing the property ladder and the unique challenges they face in their market. Smee unpacks these insights:
USA
The average age of FTHB: 33
Average annual salary (converted to Rands): R1,217,100
Average FTHB property price (converted to Rands): R5,476,953
The income-to-house price ratio is relatively lower in the US, but many young Americans struggle with student debt, unlike their European counterparts. The country’s extremely high education costs mean that even high earners are still paying off their student loans long after graduation, with this debt accruing inflation and negatively impacting credit scores. This has impacted affordability, with 29% of FTHB saying their inability to save for a deposit has delayed their homebuying plans.
Spain
Average age of FTHB: 41
Average annual salary (converted to Rands): R716,494
Average FTHB property price (converted to Rands): R3,441,423
Spain’s property prices are relatively affordable compared to other European markets; however, salaries are not increasing in line with house price inflation (HPI). Young Spaniards have also had to compete with an influx of wealthy British and Dutch expats attracted by the country’s warm climate and cheaper houses.
This may be why Spain has one of the world’s highest average ages of FTHB, second only to ultra-expensive Switzerland’s average age of 48. “To remedy this, the Spanish government recently introduced a scheme to provide a 20% deposit to first-time buyers under 35, significantly improving affordability,” says Smee. “This has proved immensely popular and could soon become a trend among other European countries.”
United Kingdom
The average age of FTHB: 34
Average annual salary (converted to Rands): R873,055
Average FTHB property price (converted to Rands): R6,155,786
“It’s no wonder that the UK is one of the most difficult markets in the world for first-time buyers, with the gap between average salary to property price far exceeding any other country we’ve looked at,” says Smee. “This is due to the influx of young people to city centres, driving up property prices because of the limited stock available. One could say that buying a property in Central London is only possible for the ultra-rich, with the average price of a two-bedroom flat increasing by £100,000 (R2,423,538) over the last decade.”
Best and worst countries for young buyers to get on the property ladder
Regarding the most affordable country for FTHB to purchase their first property, Southeast Asian countries constantly rank highest in terms of property value for money, with house prices closely matching the median income. In 2022, Vietnam was listed as the most economical destination for new buyers by the Annual Global Retirement Index, and rental costs have seen a 50% decline in the last year. The island of Bali follows as a close second for value for money on property, with the economy boosted by expats.
“Unsurprisingly, Australia ranks as one of the most unaffordable countries in the world for first-time buyers, as house prices in cities like Melbourne and Sydney have skyrocketed over the last ten years,” says Smee. “However, as with Spain, the government is working to alleviate some pressure on FTHB by introducing schemes to reduce deposit size and mortgage insurance requirements.”
South African FTHB affordability levels are higher than expected
According to the Q2 2023 oobarometer from ooba Home Loans, the average age of first-time buyers in South Africa is 36, which closely aligns with the average global trend. However, at R1,120,173, the average purchase price paid by local young buyers is far lower than in any of the other 25 countries included in the report.
While data for first-time buyers’ average income has not been released, ooba Home Loans data reveals that the average gross income of their applicants is R57 568 monthly or R690 816 annually. “While this is not representative of the entire country, as South Africa’s income disparity is immense, these figures indicate that the gap between income levels and property prices is significantly smaller than in many other global property markets,” Smee argues.
He urges would-be homeowners to take advantage of the current favourable conditions in the local residential property market. “There’s no denying that property ownership is a significant financial investment, but here, unlike in many other developed countries, it is not an asset reserved solely for the ultra-rich. Prioritise saving, build your credit score, and your dream of owning your own home may be closer than you think,” he concludes.
