Smaller is better for first-time buyers

Private Property South Africa
Press

Size matters, as the saying goes. And, in the case of property in the current economy, first-time buyers are advised to aim for smaller and wiser rather than larger, which will become increasing less affordable.

The recent 0.5% rise in the interest rate and the strong possibility of more rises before the end of this year are definitely causes for concern, says Bill Rawson, Chairman of the Rawson Property Group, because residential property in South Africa had in 2012 already become less affordable to large sectors of the population.

Quoting the respected FNB economic analyst John Loos, Rawson said that in the current “supply constrained” residential market prices in most categories will continue to rise this year, probably at above 8%, while employee remuneration growth will probably decline (to below 6%). FNB’s price-to-average-employee remuneration index, said Rawson, as well as their index for installment payments on a new 100% bond in relation to average employee remuneration both fell by almost 2% in the second quarter of last year. Since then, he said, Loos has indicated that a slight improvement in affordability levels took place – but the prediction now is that this situation is very unlikely to be maintained.

Aim for affordable

“The average South African’s ability to afford the home of his choice will, regrettably, almost certainly decline further this year. With interest rates on the increase, the indices quoted above will probably look even less satisfactory by the year end,” said Rawson.

In the circumstances, said Rawson, South Africans must very seriously consider lowering their targets and ambitions in order to become house owners and should do all they can to maintain this ambition rather than to be rent payers in perpetuity.

“Survey after survey,” he said, “has shown that, at the lower and middle income groups, investing in a house is the surest way for people to build up an asset. Unless they are extremely self-disciplined, no other investment channel performs as satisfactorily for these income groups as does housing.”

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