You don’t have to buy the ‘average’ house

The average salary won’t buy you something in the average house price range now, but that does not mean that prospective property buyers should give up on the idea of home ownership, says Berry Everitt, Managing Director of the Chas Everitt International property group.

Writing in the latest Property Signposts newsletter, he notes that, according to the latest ABSA Housing Review, the national average house price of a South African property in the middle segment of the market (R500 000 to R3,6 million) was R1,1 million at the end of last year (2012).

“Without a deposit, the minimum monthly bond repayment on such a home would be just short of R8 700 so, using the rule-of-thumb that your bond repayment should equal no more than around 28% of your household income, you would need to earn around R31 000 a month to buy it.

“And even with a 20% deposit, the monthly repayment would be just over R7 600, so you would need a monthly household income of about R28 000 – which is well beyond what the average South African household earns, according to the latest Census figures.”

These figures show, Everitt says, that the average annual salary in South Africa is some R103 204, which translates into earnings of R8 600 a month – and a monthly household income of R17 200 a month in households where there are two average salaries coming in.

“However, this absolutely does not mean that average salary earners have to give up on their dreams of owning their own property in South Africa, as there are actually many homes available that should be well within their means.

“The ABSA figures also show, for example, that the national average price of a home in its “affordable” category (40 square metres to 79 square metres and priced at less than R500 000) was showing a property value of R345 000 in the final quarter of 2012, and that the average price of a small home (80 square metres to 140 square metres) in its middle market segment was R778 000.

“Assuming a 10% deposit, these average house price statistics mean that the household income required to buy an affordable home currently ranges from about R10 000 to R22 000 a month.

“And that means, in turn, that those households earning the South African average of R17 200 a month should quite easily be able to get a foothold in the property market now, if they set their sights on homes priced at around R500 000 to R550 000.”

What is more, he says, they should really try to do so soon, because affordability is currently actually at a high point in terms of housing prices and mortgage repayments in relation to household disposable incomes.

“Housing prices are on the rise, especially at the lower end of the market, where they grew 6,6% last year, and interest rates probably won’t hold at the current historic lows for more than another year, so the longer many first time property buyers wait, the less house they will get for their money,” he says.

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