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“No job, no home” – why 2016 looks worse than 2015


What’s more pressing than the #feesmustfall debate? The question of accommodating the 185,000 annual tertiary institution graduates in the job market. Consider that the economy is showing no job growth and retrenches some 10,500 workers a year, and the point hits home, and hard. This is according to Neville Berkowitz, property economist and adviser to low-commission estate agency, HomeBid.

Of those graduates, 45% receive Bachelors’ degrees, 13% Honours degrees, 6% Masters’ degrees, and 1% Doctorates. The remaining 35% receive diplomas or certificates.

Economists are revising their growth prospects downwards for 2016 to around 1% per annum – even lower than in 2015 which is showing anemic growth at best.

“The writing has been on the wall for the past 30 months as employment levels have dropped in six of the eight economic sectors which employ 8,9 million people in the formal, non-agricultural sector,” says Berkowitz.

Between June 2013 and June 2015, 21,000 people have been retrenched and remain unemployed in the formal sector, with no new job growth in the economy.

In the meantime, each year 1 million new job seekers look for work. These people are comprised of either matriculants or school dropouts (more than 50% of school leavers do not graduate from Grade 12).

A further 970,000 students attend a tertiary institution, while only 185,000 (just over 19%) graduate annually. In a nutshell, there could be as many as 1,5 million to 2 million new job seekers annually entering  an already saturated job market which boasts no new jobs and where 21,000 workers were retrenched between June 2013 and June 2015.

Only two sectors have increased employment levels over the past 24 months. Unsurprisingly, one is the public sector, social sector and personal services industry, which increased staff by 71,000 workers. The other is the lowest average wage sector: wholesale and retail trade, motor repair, personal and household goods and the hotels and restaurant industries, which increased staff by 11,000 people.

The construction industry retrenched 33,000 people during the 24-month period of June 2013 to June 2015, while manufacturing lost 24,000 workers. Mining shed 21,000, transport, storage and communication 13,000, financial intermediation, insurance, real estate and business services  11,000, and electricity, gas and water supply 1,000 people.

Mortgage affordability per average worker in South Africa

With no new job growth and some 11,500 jobs lost annually over the past two years, the only change in homeownership is coming from existing workers upgrading or downgrading their homes.

People who don’t have jobs cannot buy homes unless they are given to them for free – which is happening at the entry-level segment through government-financed housing.

At a macro level of homeownership, South Africa does not need any new homes to be built for homeowners if there is no increase in job growth numbers.

Practically speaking, people’s wealth increases and decreases due to their personal circumstances, and as they move through the lifecycle of homeownership their needs for more or less space require them to upgrade or downgrade their choice of homes.

“It’s these market changes that are currently causing some 275,000 homes to change hands annually in South Africa,” according to Berkowitz.

What about mortgage affordability?

The average worker in the non-agricultural economy earned R16,796 in June 2015.

Assuming a couple, with both members working outside the agricultural sector, earned an average of R33,592 a month and the mortgage lender used 25% of their monthly salary as a yardstick to assess their ability to service a mortgage bond, this would result in a mortgage loan monthly payment of R8, 400. This would finance a R1 m mortgage loan at current bond interest payments.

Single people earning an average of R16,796 could afford a mortgage bond in the region of R500,000.

“There were 71,101 homes sold and transferred in the various Deeds Offices around South Africa during the third quarter of 2015,” says Berkowitz. “And the average price was R1,188,243.”

Forecast of home prices in 2016

Berkowitz foresees that the average worker is being caught between a rock and a hard place. “There are no new jobs being created and net retrenchments loom large for the third year in a row,” he says. “There will be approximately 500,000 matriculants and 185,000 graduates from tertiary institutions looking for work in 2016.

“Annual wage and salary increases in the private sector, if given at all, are likely to be around or below the inflation rate, while increases in personal taxes, corporate taxes and VAT are possible in next year’s Budget. The bloated public sector is likely to receive a 6.5% per annum salary and wage increase for 2016 which will also be around the inflation rate.

“With tax ‘bracket creep’ and a possible increase in interest rates to attract foreign loans to bolster a flagging economy, the affordability factor for the average worker to maintain their home’s monthly mortgage loan repayment will not be easy to achieve – especially if interest rates rise by between 1% and 2% per annum.

The prospects for average home prices in the region of R1,2m favour a drop in real terms – after inflation – and, depending on the severity of any interest rate increases, a possible drop in nominal terms as well.

“Homeowners will be hard-pressed to save money wherever possible, and businesses offering such savings to them will be well supported in 2016.”


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