How much do you need to earn to live the lifestyle you want?

Private Property South Africa
Tahir Desai

Lightstone Property have done a nifty little analysis that tells you how much home and car your salary will buy you in South Africa.

Your salary and your home

To determine the salary you would need to buy property in a particular area, they used the following criteria:

• Gross salary per month (referred to as “salary”)
• The median value of properties (we prefer opting for the median over the average, as it eliminates extreme values which can influence the price within a suburb, and it gives a good representation of the typical house value in the suburb as a whole)
• A 20 year mortgage at a fixed prime rate (10.5%)
• 100% financing with no deposit made in purchasing a property, but transfer and other related costs are excluded.
• No more than 30% of a person’s gross monthly salary would be allocated towards mortgage repayments each month (this is based on mortgage lender standard assumptions.)

Median salary and property value by province

The median value for a property in the Western Cape is R680 000, the highest out of all of the provinces, and one which would require a monthly salary of R22 600. The Eastern Cape is the province with the lowest median value of a property (at R380 000) requiring a salary of R12 600. To afford a property in Gauteng where the median value is R620 000, you’d typically need a salary of R20 600.

Comparing median values of properties on a provincial level and the salaries required, there isn’t a massive difference in numbers. Between Gauteng and the Western Cape, there is a R60 000 difference in the median value of properties, and only R2 000 difference between salaries needed to afford such properties.

Stunning aerial picture of the Atlantic SeaboardStunning aerial picture of suburbs on the Atlantic Seaboard

The suburban split

The difference on a provincial level is not that great but when the analysis is done by suburb, the difference in salary needed to purchase within them becomes dramatically different.

To afford a luxury beach property with a median value range of R11 700 000 in Llandudno, you’d need a monthly salary of R389 400. A property of R7 200 000 within the coastal estate of Zimbali would require a salary of at least R239 600, and a property of around R8 350 000 in De Zalze Golf Estate would require a salary of R277 900.

Estates and luxury properties along the beach are a firm favourite among top earners in South Africa (and those from abroad) where, if a person can afford it, they don’t mind spending high amounts of money, mainly because properties of this nature tend to offer a heightened level of security and provide better investment opportunities (and often, a great view) for buyers.

What salaries are doing

CareerJunction recently released their annual salary index which tracks year-on-year changes in market-related pay across 10 sectors in South Africa.
In 2016, most jobs covered by CareerJunction saw an increase in average salaries, with 71 of 107 careers seeing pay climb.

However 36 jobs saw the average salary offered drop – by as much as 60%. According to the survey, the biggest climber in salaries were for investment bankers, where a skilled employee saw offered salaries of R39 659 per month. While this salary would provide the investment banker the opportunity to afford a property of R980 000 in Bedford Gardens or the Cape Town Centre (where a R32 600 salary would suffice for both suburbs) they might have a bit of trouble pinning down a holiday home or property in Umhlanga which would require a salary of R106 500 for a property with a median value of R3 200 000.

Your salary and your wheels

Now that property is sorted, we can turn our attention to how a car splits the property and salary required aspect.

Lightstone’s analysis in this instance was based on:

• The approach of allocating 20% of a person’s salary (as a broad average, taking into account the fact that we have factored 30% of a person’s salary toward mortgage repayments - for the sake of the illustration in this newsletter – taking repayment on asset related debt to 50% in total each month)
• An interest rate of Prime + 2% (12.5%) on Vehicle Asset Finance
• Car repayments made over a five year period
• Stock price of a vehicle with no extras
• 100% financing with no deposit made in purchasing the car, but initiation fees and other related costs are excluded

*They picked out a few cars that would fit within a few salary brackets: *

  • A R16 600 salary would get you R500 000 property in Parow Central and a brand new Toyota Etios 1.5XI worth R147 569
  • A R23 300 salary would allow you to purchase a R700 000 property in Krugersdorp West and a 2013 Ford Eco Ecosport 1.0 Ecoboost Titanium.
  • A salary of R49 900 would get you a R1 500 000 property in Noordheuwel, and you could add a vehicle worth R442 000 (maybe a brand new Kia Sportage 2.0 AWD MY14 AT)
  • If you’re lucky enough to earn a salary of R106 500, you could buy a R3 200 000 Umhlanga Rocks pad and A sleek Range Rover Evoque 2.0 for R946 753.

You can tailor your home/car combo according to your needs

Lightstone weighted 30% of a person’s gross monthly salary on mortgage repayments and 20% on car finance, but this ratio could quite easily be adjusted for individual needs and investment preferences. A person at the Coast may opt to spend less on their car as the perception of humidity and salty sea causing substantial damage to it in the long run increases; whereas a person living in Pretoria and travelling to JHB each day might opt to spend more on a more comfortable car to provide more comfort during the long daily commute.

While macro-and-micro economic factors may play their respective parts in the proportion of salary spend on each asset, at the end of the day individual home and vehicle buyers will have to make informed decisions based on their personal affordability assessments on how much they are willing to spend on each.

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