Home / Mortgages & Finance  / Here’s why first-timers can’t afford Cape Town homes

Here’s why first-timers can’t afford Cape Town homes

Cape Town northern resize

Cape Town boasts the strongest residential sales market in South Africa, with significantly higher property values as well as the lions’ share of the country’s most expensive streets and wealthiest suburbs. The city, however, lags dismally in one significant aspect: the fact that it has the lowest percentage of first-time home buyers in South Africa, with only 16% of total sales being in this demographic – considerably lower than the national average of 21%.

Start your property search here

This is according to a report published this month by FNB property economist, John Loos, who says first-time buyers account for between 20% and 25% of sales in all five of the other major metros, led by Nelson Mandela Bay. Cape Town is the only city where these sales account for less than 20% of its market.

“That region’s (Western Cape) low percentage may in part have to do with affordability challenges for young buyers that may have arisen due to recent strong house price inflation,” says Loos, commenting on the figures extracted from Q2 2016 FNB Estate Agents’ Survey.

A moving targetTarget market

This is a view held by Lew Geffen, chairman of Lew Geffen Sotheby’s International Realty, who says his agency has seen dramatic price inflation in Cape Town during the past decade, with the increase in property values far exceeding consumer inflation and placing property in the most sought-after suburbs well out of reach of the majority of first-time buyers.

“For instance, in 2006 it was possible for a young family to buy a comfortable three-bedroom house in Rondebosch for around R1,5m with two- and three-bedroom flats generally ranging between R700,000 and R800,000,” he says. “Despite the current market slump, an apartment in Rondebosch for under R1,5m would now be a very lucky find indeed and a family home for under R3m would most likely require considerably more than a little TLC.”

Pricing is, however, one reason for the low take-up in real estate in Cape Town, with Geffen saying first-time buyers require financing and are often unaware of the criteria they need to meet in order to qualify for a loan.

“In addition to the applicant’s credit worthiness, banks also take a number of other factors into account such as regular monthly expenses and existing debt,” he says. “And, as the upsurge in property values has also leapfrogged ahead of salary increments, many first-time investors are unable to afford the monthly bond repayments of a 100% bond; a growing number are also forced to delay their purchases while they save for larger deposits.”

According to BetterLife Home Loans, banks have raised their deposit requirements, asking buyers to have between 12.3% and 22.2% saved up for a deposit, on average.

This means that first-time buyers in the price band between R300,000 and R1,5m need to have saved up between R36,900 and R333,000 before a bank would even consider their application. This excludes the cash needed for bond costs (R10,200 to R24,900) and transfer fees (R10,700 to R55,300), as well as opening the municipal account.

First-time buyers, here’s how you can still pay a 10% deposit from R300,000 to R1,5m

According to a recent report by property data company, Lightstone, the median value for property in the Western Cape as a whole is R680,000 – the highest of all provinces. The Eastern Cape is the province with the lowest median value of residential property at around R380,000, while Gauteng has a median of R620,000. To afford a bond for a typical median property in the Eastern Cape would require a salary of just less than R13,000 a month, and in Gauteng the salary required would be just over R20,000.

“To put it in perspective, you would need a monthly household income of at least R90,000 to buy a R3m home, R22,600 to qualify for a bond for an apartment of R680,000, and R270,000 a month to finance a family home of around R7m in a sought-after golf estate or upmarket suburb like Camps Bay,” says Geffen.

Salaries losing ground

In April CareerJunction released its annual salary index which tracks year-on-year changes in market-related pay across 10 sectors in the South African economy. Between 2015 and 2016, most job sectors covered by CareerJunction saw an increase in average salaries, with 71 of 107 careers seeing pay climbs. However, 36 jobs saw the average salary offered drop – by as much as 60%.

The Western Cape regional breakdown was not as bright, though. In nine of the 10 sectors tracked by CareerJunction, average inflation-adjusted salaries for new positions dropped in the province year-on-year by up to 28%, and the biggest losers were the finance and engineering sectors.

On a national basis the biggest climber in the earning stakes was for investment bankers, where a skilled employee was likely to be offered in the region of R39,659 per month.

First-timers don’t despair

Rondebosch Village

This one-bedroom flat in Rondebosch Village is on the market for R1,1m through Lew Geffen Sotheby’s.

As daunting as all this may sound, there are still affordable pockets in the Western Cape property market.

Muizenberg offers buyers a modern cluster home in Costa da Gama or Capricorn from around R650,000, according to Steve Thomas, franchise manager for Lew Geffen Sotheby’s International Realty in False Bay and Noordhoek.

“Property here is also an excellent investment and since the market began to pick up in 2013, Muizenberg has become increasingly popular with young families who are drawn by its variety of property options, accessible prices and lifestyle,” he says.

Wynberg, too, contains entry-level apartments from R500,000 to R900,000 for one- or two-bedroom flats – though these are rare.


Review overview