SA’s first-time homebuyers are better off than those in other countries
House prices across the globe are the most expensive they have ever been, and as hard as it is to get on the property ladder in South Africa considering the economic pressures, we are not the worst-hit in the world.
From South Africa and Australia to the UK and USA, the vast majority of young people aspire to be homeowners and see property as a sound investment and effective wealth creation tool, but there are just so many hurdles to making it a reality.
In this country, Grant Smee, managing director of Only Realty Property Group, says high levels of youth unemployment, coupled with surging interest rates and the increased cost of living, have left many people feeling demotivated and wondering whether homeownership is simply a pipe dream.
US-based insurance company Zebra found that 68 out of 100 Americans could afford to purchase a home in 1960, but that by 2022, only 43 out of 100 could. Still, the increasing cost of property hasn’t deterred all would-be young homebuyers, with many simply choosing to delay their purchase till later in life to ensure affordability.
British website Money.co.uk recently conducted a global study of first-time homebuyers (FTHB) from 25 countries to assess the average age, salary, and price paid for their first property, and as the first study of its kind, it gives a fascinating insight into how young buyers across the world are climbing the property ladder and the unique challenges they face in their market.
Smee unpacks these insights:
USA
- Average age of FTHB: 33
- Average annual salary (converted to Rands): R1,217,100
- Average FTHB property price (converted to Rands): R5,476,953
The income-to-house price ratio is relatively lower in the US, but many young Americans, unlike their European counterparts, are struggling with student debt. The extremely high price of education in the country means that even high earners are still paying off their student loans long after graduation, with this debt accruing inflation and negatively impacting credit scores.
This has impacted affordability, with 29 percent of FTHB saying that their inability to save for a deposit has delayed their homebuying plans.
Spain
- Average age of FTHB: 41
- Average annual salary (converted to Rands): R716,494
- Average FTHB property price (converted to Rands): R3,441,423
Smee says Spain’s property prices are relatively affordable in comparison to other European markets but salaries are not increasing in line with house price inflation (HPI).
“Young Spaniards have also had to compete with an influx of wealthy British and Dutch expats who are attracted by the country’s warm climate and cheaper houses.”
This may be why Spain has one of the highest average ages of FTHB in the world, second only to ultra-expensive Switzerland’s average age of 48.
“To remedy this, the Spanish government recently introduced a scheme to provide a 20 percent deposit to first-time buyers under the age of 35, significantly improving affordability. This has proved to be immensely popular and could soon become a trend among other European countries.”
United Kingdom
- Average age of FTHB: 34
- Average annual salary (converted to Rands): R873,055
- Average FTHB property price (converted to Rands): R6,155,786
It’s no wonder that the UK is one of the most difficult markets in the world for first-time buyers, with the gap between average salary to property price far exceeding any other country we’ve looked at, he says.
“This is due to the influx of young people to city centres, driving up property prices because of the limited stock available. One could say that buying a property in Central London is now only possible for the ultra-rich, with the average price of a two-bedroom flat increasing by £100,000 (R2,423,538) over the last decade.”
Best and worst countries for young buyers to get on the property ladder
When it comes to the most affordable country for FTHB to make their first property purchase, Southeast Asian countries constantly rank highest in terms of property value for money with house prices closely matching the median income.
In 2022, Vietnam was listed as the most economical destination for new buyers by the Annual Global Retirement Index and rental costs have seen a 50 percent decline in the last year. The island of Bali follows as a close second for value for money on property, with the economy boosted by expats.
Unsurprisingly, Smee says, Australia ranks as one of the most unaffordable countries in the world for first-time buyers, as house prices in cities like Melbourne and Sydney have sky rocketed over the past 10 years.
“However, as with Spain, the government is working to alleviate some of the pressure on FTHB by introducing schemes to reduce deposit size and mortgage insurance requirements.”
South African FTHB affordability levels higher than expected
The Q2 2023 oobarometer from ooba Home Loans reveals that the average age of first-time buyers in South Africa is 36, which closely aligns with the average global trend. However, at R1,120,173, the average purchase price paid by local young buyers is far lower than in any of the other 25 countries included in the report.
While data for the average income of first-time buyers specifically has not been released, ooba Home Loans figures reveal that the average gross income of their applicants is R57,568 monthly or R690, 816 annually.
“While this is obviously not representative of the entire country, as South Africa’s income disparity is immense, these figures do indicate that the gap between income levels and property prices is significantly smaller than in many other property markets around the globe,” Smee says.
He urges would-be homeowners to take advantage of the current favourable conditions in the local residential property market.
“There’s no denying that property ownership is a significant financial investment, but here, unlike in many other developed countries, it is not an asset reserved solely for the ultra-rich. Prioritise saving, build your credit score and your dream of owning your own home may be closer than you think.”
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