How many generations will it take to save up for a home in South Africa?
South Africans in general buy their homes with the help of a bank, committing between 20 and 30 years to paying back the debt funding. But is there a better and quicker way to homeownership (excluding buying using cash)? Property data company, Lightstone Property, flipped the scenario on its head and explored the reverse: How long would conventional saving take to secure the house of your dreams if bank loans were not available?
The study looked at the potential saving pattern for households across South Africa assuming 10% of the average income was invested and grew at an annual rate of CPI plus 2% (8%). The latest census data and a simple compound interest calculation was applied to devise a quick reference guide to how many years it would take for the average money-earner to be able to afford the listing price.
The Western Cape-Gauteng divide
The average income band in the Western Cape was slightly higher than that of Gauteng, with the economic powerhouse’s mean household income registering at R14,300 (compared to the Western Cape’s R15,352).
While Johannesburg has the highest concentration of business head offices and attracts top professional talent, the sheer volume of lower-income earners has brought down the area’s income average.
Lightstone reports that the average Cape Town couple choosing between buying a home in Rondebosch for their future grandchildren to use while studying at UCT and a holiday home in Saldanha Bay would be faced with a 92-year or an 83-year saving plan.
If a young professional earning R25,000 per month puts his 10% in a bank each month, he can hope to own a home in Cosmo City after 71 years of saving, where the mean price of homes range from R118,000 to R574,000. The same young professional could only hope to buy a house in Florida View, it would take him nearly three generations (83 years) to save for the home that is likely to cost R1,540,000.
These numbers from Lightstone reveal that saving for any home is not for the faint-hearted and the affordability factor for the average South African is being stretched by rising home prices. The dream of owning a home will, invariably, require significantly more than a 10% monthly saving.