How much home and car does your salary buy you?
Do you know what salary you need to be earning to purchase a property in a particular area of South Africa?
Property data company, Lightstone, delved into their data to address this exact question.
Before they could uncover their findings, they explain how they got to their results. The “salary needed for property” element is based on:
Gross salary per month (referred to as “salary”)
The median value of properties (they prefer opting for the median over the average, as it eliminates extreme values which can influence the price within a suburb, and it gives a good representation of the typical house value in the suburb as a whole)
A 20 year mortgage at a fixed prime rate (10.5%)
100% financing with no deposit made in purchasing a property, but transfer and other related costs are excluded
No more than 30% of a person’s gross monthly salary would be allocated towards mortgage repayments each month (this is based on mortgage lender standard assumptions)
The median value for a property in the Western Cape is R680,000, the highest out of all of the provinces, and one which would require a monthly salary of R22,600. The Eastern Cape is the province with the lowest median value of a property (at R380,000) requiring a salary of R12,600. To afford a property in Gauteng, where the median value is R620,000, you’d typically need a salary of R20,600.
When comparing median values of properties on a provincial level and the salaries required, there isn’t a massive difference in numbers. Between Gauteng and the Western Cape, there is a R60,000 difference in the median value of properties, and only R2,000 difference between salaries needed to afford such properties.
What about when you take it one step further and analyse suburbs and the salary needed to purchase within them? This is where the numbers change – substantially.
Lightstone found that to afford a luxury beach property with a median value range of R11,700,000 in Llandudno, you’d need a monthly salary of R389,400. A property of R7,200,000 within the coastal estate of Zimbali would require a salary of at least R239,600, and a property of around R8,350,000 in De Zalze Golf Estate would require a salary of R277,900.
Estates and luxury properties along the beach are a firm favourite among top earners in South Africa (and those from abroad) where, if a person can afford it, they don’t mind spending big amounts of money. This is mainly because properties of this nature tend to offer a heightened level of security and provide better investment opportunities (and often, a great view) for buyers.
CareerJunction released its annual salary index which tracks year-on-year changes in market-related pay across 10 sectors in South Africa. In 2016, most jobs covered by CareerJunction saw an increase in average salaries, with 71 of 107 careers seeing a pay climb. However, 36 jobs saw the average salary offered drop – by as much as 60%. According to the survey, the biggest climber in salaries was for investment bankers, where a skilled employee saw offered salaries of R39,659 per month. While this salary would provide the investment banker the opportunity to afford a property of R980,000 in Bedford Gardens or the Cape Town Centre (where a R32,600 salary would suffice for both suburbs), they might have a bit of trouble pinning down a holiday home or property in Umhlanga which would require a salary of R106,500 for a property with a median value of R3,200,000.
What happens when a car is added to the mix? How does that split the property affordability and salary required aspect?
The approach of allocating 20% of a person’s salary (as a broad average, taking into account the fact that 30% of a person’s salary is factored toward mortgage repayments, taking repayment on asset related debt to 50% in total each month)
An interest rate of prime + 2% (12.5%) on vehicle asset finance
Car repayments made over a five-year period
Stock price of a vehicle with no extras
100% financing with no deposit made in purchasing the car, but initiation fees and other related costs are excluded
A salary of R49,900 would get you a R1,500,000 property in Noordheuwel, and you could add a vehicle worth R442,000 (maybe a brand new Kia Sportage 2.0 AWD MY14 AT or a second-hand Mitsubishi Pajero BK 3.2 DI-DC). A salary of R41,600 could get you a R1,250,000 property in Parkhill in KwaZulu-Natal, and a brand-new MINI Cooper convertible 1.6 MY16 worth R368,000.
Lightstone weighted 30% of a person’s gross monthly salary on mortgage repayments and 20% on car finance, but this ratio could quite easily be adjusted for individual needs and investment preferences. A person at the coast may opt to spend less on their car as the perception of humidity and salty sea causing substantial damage to it in the long run increases; whereas a person living in Pretoria and travelling to Joburb each day might opt to spend more on a more comfortable car to provide more comfort during the long daily commute.
Values of property at the coast (particularly within the Western Cape and the North Coast of KZN) may be appreciating in value better, so some residents here may opt to spend a higher portion of their salary on that as it is seen as a long-term investment compared to a car.
While macro- and micro-economic factors may play their respective parts in the proportion of salary spend on each asset, at the end of the day individual home and vehicle buyers will have to make informed decisions based on their personal affordability assessments on how much they are willing to spend on each.