Nadia Krige ponders what it takes to be a property owner in Cape Town these days.
With how fast the world moves these days, this headline is an old joke by now. Long forgotten in the annals of cyberspace.
However, should you have just returned from a digital detox (or emerged from under a proverbial rock) and feel a little out of the loop, here’s a quick catch-up:
About a month ago, Tim Gurner, a Melbourne-based millionaire and property mogul, appeared on Australian news show 60 Minutes to share a few thoughts on how millennials (those born between 1982 and 2004) can go about fulfilling that big – and almost impossible – dream of owning a home. What he said came down to discipline (okay, sure, we’re listening). Not spending our money on unnecessary luxury items (once again, good point). And cutting back on … wait for it … the delicacy that is avocado on toast.
Yes, “smashed avocado” on toast and “$4″ coffees are the guilty pleasures holding us all back from exchanging our monthly rent for a mortgage bond, didn’t you know?
Now, look, for much of the year, avocados are rather expensive, and this, for the simple reason that their price point is determined by their seasonality (which reminds me – we should all sit down and have a chat sometime soon about just how cut off from the natural cycles of life we are). But even so, I’m pretty sure that my love for this delicious superfood isn’t the reason why I’m 31 and still without property.
Doing the math
Let’s just assume that the average price per avocado has been R15 over the past year. Now, let’s assume you’re lucky enough to be a young professional living in a single occupant household, responsible for your own grocery shopping and meals. Now, let’s assume you eat half an avocado a day. At R15 an avocado, four times a week for 52 weeks, you spend a total of R3 120 on avocados per year.
Now, let’s look at the prices of one-bedroom apartments in Cape Town’s CBD, by taking a quick scroll through Property24. You’ll be hard-pressed to find something cheaper than R1.397m (for a minuscule 31m²) in this area, while R5m seems to be the maximum price for larger studios/one-bedrooms. It’s safe to say that the going rate seems to lie somewhere between the R2.2m and R2.9m mark.
So, with the general rule being that bond repayments shouldn’t exceed a third of your monthly salary, you’d need to have a gross monthly income of about R46 000 to be able to afford the former, which is just beyond the generally accepted middle-income bracket of R15 000 to R30 000 a month. The latter would, in turn, require a gross income of a whopping R96 000 a month.
So, even if you stopped buying avocados entirely and placed your avocado money straight into a savings account for a home, you’d have to save for well over 800 years. Or, more realistically, your monthly saving of R240 is hardly going to make a dent in your R30 000 bond repayment.
Okay, fine. I’m being silly. And I get what Gurner was saying. Avocado on toast is obviously a metaphor for all luxury items we splash out on. Maybe if we spent less money on wine, beer, travel and experiences, we’d be able to own homes.
Even so, his point is invalid.
Between a rock and a hard place
The truth of the matter is that the average annual household income in Cape Town sits at R57 500. That’s R4 791 per month. Now, households that earn between R3 500 and R15 000 a month qualify for gap or social housing and are, therefore, to some extent, the government’s responsibility.
The steadily growing middle-income bracket (R15 000-R30 000 a month) with a desire to buy property (it’s not something everyone’s into) are finding themselves increasingly stuck between a rock and a hard place, as the prices of properties close to jobs are entirely disproportionate to what would otherwise be considered decent entry-level salaries.
And this, even though there has been a slight drop in the City of Cape Town’s average house price growth rate from 14.5% in 2016 to 14.1% in 2017.
Unsurprisingly, suburbs closest to the CBD and the ocean show the highest growth rates, with the following five showing the greatest year-on-year growth in 2017:
- Atlantic Seaboard – 33.9%
- City Bowl – 20.9%
- City near eastern suburbs – 17.3%
- Southern Peninsula – 13.8%
- And the only one with an accelerating growth rate: Somerset West-Strand-Gordon’s Bay coming in at 13.7%
In his recent analysis of Cape Town house price indices, John Loos, household and property sector strategist at FNB, suggests that possible evidence of the city’s affordability challenges can be found in the FNB Estate Agent Survey which – for the two summer 2016/17 quarters – showed a very low estimate of first-time buyer levels.
“Whereas Joburg and Tshwane’s sample of agents surveyed estimated that 1st time home buyers amounted to 27% and 21% of total home buyers respectively, Cape Town’s estimate was a lowly 8%,” he writes.
This reflects the reality of many young professionals opting to move from inner-city apartments to the far outskirts of the city (Durbanville, Kraaifontein, Brackenfell, Boston and Somerset West are some of the most popular areas) when wanting to invest in property.
But, it’s not only the young professionals suffering in the face of these exorbitant house prices. In a Fin24 article, Marcia Klein writes that Joburgers looking to live by the sea, may have to start thinking twice about seeking greener pastures in Cape Town. Apart from the fact that relatively substantial salary cuts are inevitable, they would have to expect to pay between R4m and R10m for a home in the Mother City, of which the equivalent would cost between R2m and R3m in Johannesburg.
So where to from here?
However, as Somerset West’s house prices seem to be on the rise and other outlying areas become ever more saturated, one can’t help but wonder where to next?
My guess is good as yours. But, at least let’s make it somewhere avocados are cheap and plentiful, shall we?
So, Polokwane… what are the house prices like over there?
Featured illustration: Quasiem Gamiet