Sign of shrinking economy? Cape property prices soar beyond reach of young buyers

It’s proving tough for first-time buyers to get a foot on the Cape Town property ladder, with fewer first-time buyers than in the Gauteng region. This development is a great pity when you consider that residential real estate in the Mother City has helped many ordinary salary earners build wealth in recent decades. You really didn’t need to do much more than buy property and reap the benefits of high inflation and demand for real estate in the city to see the value of your assets increase exponentially. Respected property economist John Loos says prices have soared beyond the reach of many, though he also attributes the changing market conditions in part to a weaker economy, which includes a more difficult job market. But other factors have also conspired to keep first-time property investors out of the market. This includes the red tape and credit-checking regulations that make it harder for applicants to convince bank managers that they can genuinely afford to own rather than rent. Government should consider easing some of this pressure. It stands to reason that the more people buy their own homes and build equity for themselves through property ownership, the less of a burden they will be on the state – and the more they will be able to contribute to economic growth. As Peruvian economist Hernando de Soto highlighted to the world: property ownership among the masses is a vital ingredient in a successful market economy. – Jackie Cameron

By Carin Smith

Cape Town -Only an estimated 13% of buyers in Cape Town purchased a property for the first time in 2016, according to the FNB Estate Agent Surveys.

By comparison, first-time buyers made up 22% and 24% respectively in the major Gauteng regions of greater Johannesburg and Tshwane.

“We know that the land-constrained City of Cape Town has experienced significantly faster house price growth than the rest of the major regions in recent years and has a strong net inward migration of repeat home buyers from other regions too,” explained John Loos, household and property sector strategist at FNB.

“It is possible that affordability challenges in that region are ‘crowding out’ first-time buyers to a greater extent than in Gauteng – a key challenge for Cape Town should it wish to retain its younger skills base within that region.”

Tougher time

On average, first time home buyers had it tougher last year, according to the FNB Estate Agent Surveys for 2016.

There has been a weakening in the first-time home buyer segment for about the past two years.

Estate agents surveyed estimated first-time buyers made up 20% of total buying in 2016, compared to a 26.5% high in 2014 and 24.25% in 2015.

Loos explained that entry level home buyers are arguably more sensitive to economic events and interest rate hiking. They have not yet built up substantial financial reserves and are often heavily dependent on credit in order to make purchases.

Also, couples in many cases have more buying power than a single-status buyer. Therefore, a decline in the estimated percentage of home buyers who are single-status buyers points to tougher financial times, according to Loos. This would be either due to interest rate hiking or due to a weak economy and lack of new job creation.

In 2016 the estate agents surveyed pointed to a further slight decline in the estimated percentage of single-status home buyers, from 19.5% in 2014 and 17.5% in 2015, to 16.7% in 2016.

Average age

The average age of the South African home buyer continues to rise.

“However, it is also very much about ageing home owners down-scaling to smaller homes due to ‘life stage’. They are also driving a longer-term rising trend in the average age of home buyers,” explained Loos.

From 40.92 years in 2007, the average age of individual property buyers (“natural persons”) has risen to 44.4 years by 2016, a further increase on the 43.82 years in 2015. – Fin24


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