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What can 4,3m middle class earners really afford?

The middle class only numbers some 4,3 million people in South Africa. Those who earn between R18 000 and R59 000 a month. What can they realistically afford asks Harcourts Africa CEO Richard Gray.

When times get tough in the real estate market, he says, home sellers really need to know what prospective homebuyers can afford, so they can set their asking prices accordingly.

In that regard, it’s useful to focus on the middle class, which forms the backbone of most markets and is usually a pretty reliable indicator of which way things are trending.

There are of course a number of different definitions of what it means to be middle class, or what middle class people earn, but that used by Credit Suisse in its 2015 report, defines middle class as those individuals earning between R18 000 and R59 000 a month. This segment of South Africans numbers roughly 4,3 million individuals, or 13,7% of the country’s adult working population, estimated at 31,4 million.

These also accord quite well with the figures produced by the Unilever Institute of Strategic Marketing at UCT, which reported in 2013 that the middle class consisted of about 4,2m individuals living in households earning between R15 000 and R50 000 a month. It noted, however, that some lending institutions regard a combined income of between R15 000 and R25 000 per month as falling into the affordable housing bracket and deposit requirements might vary.

The adults in these households, Unilever found, could be expected to have their own transport, a tertiary education, employment in a white-collar job and their own home or a rental home costing at least R4000 a month.

Allowing for inflation-based salary increases since 2013, according to Credit Suisse, households would currently need earnings of between R18 000 and R59 000 a month to qualify as middle class – and would need to spend at least R5000 a month on rent or a bond repayment.

Thus, the minimum home purchase price for a middle income household currently is around R575 000, including a 10% cash deposit and assuming it is funded via a home loan granted at the current prime lending rate of 10,25%.

At the other end of the spectrum, using the same accommodation cost-to-salary ratio, the maximum home purchase price that middle class households can afford is R1,85m, also including a 10% deposit and assuming they are able to obtain home loans at prime.

Naturally, there are many other factors that may influence the purchasing power of individual households, including their credit ratings and other monthly financial commitments, as well as factors beyond their control such as interest rate increases and hikes in food prices and electricity costs.

However, the above calculations should give home sellers a better idea of how many or how few buyers they can expect to attract at various price levels – especially since the higher income adults earning more than R60 000 a month are currently estimated to make up only 1,1% of South Africa’s working population. That’s 345 400 individuals, Gray points out.


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  • moladi 18th February 2016

    The formula – 1 % of the value of the property is approximately the monthly bond – x3 would be the qualifying monthly income – For a R500,000 house the mortage/bond would be R5,000 per month and the monthly income should be R15,000 – This is where the market in SA is at.