Buying Property in South Africa today is the best investment you
In 1999 the average house price in SA was R218 000. Five years
later, it is close to R500 000 and rising at 22,3% per year –
according to the Absa House price index for March 2004.
There are so many different rumours and opinions about the future
of the real estate market in SA that it is difficult for one to
get the real facts. There are for instance people who see conspirancy
theories about greedy capitalists manipulating the market and
foreigners pushing prices out of the reach of locals. On the other
hand there are banks being worried about a bubble that may burst.
And there are many owners selling their properties because they
“heard” that prices are at their peak and will start
falling when interest rates rise later this year.
But according to fundamental local and international data they
are all wrong.
It is expected that somewhere between 2008 and 2010 the average
house price is likely to reach R1 000 000 –
and that won’t be the end. SA’s house prices are still
the lowest in the world. An average two-bedroomed flat in London
cost R6m last year; in Toronto it was R2,4m; and in Madrid R2,7m.
But it was only R360 000 in Johannesburg (see table below):
Some might argue that this is not the right comparison if you
leave local purchasing power out of sight.
But if we do so, the results are even more convincing.
The latest PE Corporate Services survey shows that a marketing
director in SA earns R670 000/year, compared with a belgian –
R1.05m and a french – R940 000. The average Brussels two-bedroom
flat, is at (US) $149 000 (R970 000), and is 92% of his salary.
At R3m, the Parsian’s is 320%. But the Johannesburger’s,
at R360 000 is just more than 52%.
These data also show that SA is the only country where executives
of medium-sized companies have disposable incomes that 109% exceed
their essential living costs, including housing. Executive purchasing
power in the compared countries is less that half of South Africans
except Australia (70%). In summary, SA has higher absolute net
disposable incomes than the Belgian, French, Dutch and US executives.
“The Financial Mail is unable to find a single indicator
that does not show that South Africans have the means to go on
pushing up prices for years. Home owners can even shrug off the
forecast interest rate rises from the current 11,5%/year prime
overdraft rate to a possible 13% early next year.” (Financial
Mail, April 16 2004, Pg 48)
There has been no relaxation in demands since warnings of interest
rate increases started last year. This consistency of demand indicates
the market has a long way to go.
But how long and how high will prices
Experts forsee an 8 year ralley lying ahead of us which won’t
be strongly affected by the rand or rising interest rates. Some
even see some positive effects coming from the possible Soccer-Worldcup
in 2010. If the property prices continue to rise at the current
20% plus annually, the average house price will be R1m by 2008.
And it will still be the cheapest in the world!