Advice and Opinion

Average house price forecast for 2050 still on track to reach R73.2m

Acorn Creek Lifestyle
The Acorn Creek Lifestyle Estate apartments just launched by MSP – where the prices start from R999 900 for a 2 Bedroom with 1 and a half bathroom apartment – are still in the affordable range today, but judging by analysis of price growth over the past 50 years will eventually attain growth that far outpaces salaries.

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) really 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. He then continued this growth trend to 2050, and stated “If this trend continues until 2050, then the average house in South Africa will cost R73.2 million! If we were to cut this trend by half, then the average house will still cost a whopping R36.6 million.”

“MSP decided take another look at house price growth, to see if we are still set for that R73.2 million price tag in 2050”. Says Scheffer: “Now we have 50 full years of house price growth to analyse, and if you look at what has happened over the last 5 years – especially in the Western Cape –we are still firmly on track to see those mad prices in 2050.  In fact, the FNB Property Barometer on City of Cape Town House Price Indices shows that in the first quarter of 2017 the City of Cape Town’s estimated average house price growth rate remained in double-digit territory to the tune of 14.1% year-on-year.  The average growth for the City of Cape Town metropole over the last 5 years was 15.32% per annum (with cumulative house price growth over 5 years at 76.6%)”.

“On the land-scarce Cape Peninsula the markets remain strong. Indices show that the Southern Suburbs region is now at 12.6% growth year-on-year, the Near Eastern Suburbs (including Salt River, Woodstock and Pinelands) are at 17.3% growth year-on-year, and the City Bowl at 20.9% over the same period. The greatly sought after Atlantic Seaboard occupies its own stratum, with estimated year-on-year house price growth of 33.9%”.

“Strongest of the four major Northern regions has been the Western Seaboard (Blouberg, Milnerton and Melkbosstrand), with still solid 11% growth year-on-year for the first quarter of 2017. Durbanville-Kraaifontein-Brackenfell are at 10.1%, Bellville-Parow and surrounds at 9.7%, and Elsies River-Delft-Blue Downs on an accelerating path at 8.3% year-on-year”.

“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 last 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 for you and your loved ones over time.  It is an asset class that outperforms many other investments over time as it answers to one of the basic human needs, namely shelter”.

“If we look at the bond repayments on that average priced home of R73.2 million in 2050, it equates to a monthly installment of R730 536 at the current prime interest rate and calculated over a 20-year term. What is even more frightening is the fact that you will need to earn a monthly salary of R2 435 120 in order 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 in order to be able to buy that average home in 2050? It works out that I should earn almost R225 000 per month today in order to do so. This is indeed food for thought.”

Adds MSP CEO Riaan Roos: “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 the above percentages on year-on-year growth show, the affordability is getting worse for those looking to buy, and especially for first-time home buyers. MSP’s aim is to facilitate community upliftment by providing superior-quality, competitively priced residential properties.”

Scheffer concludes: “Clearly the answer is simple – the best time to buy property is very similar to the question as to when is the best time to plant a tree. The answer remains yesterday – and if not yet done, then today. Historically 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.”