Absa – Size of SA housing market

 Taking into account the strong growth in house prices in all regions to relatively high levels compared with a few years ago, Absa says in its Residential Property Perspective Fourth Quarter 2005, that it is worthwhile trying to determine the potential size of the housing market in the country and each of the regions for houses of 80m²+, 140m²+ and 220m²+.

This is done by taking the average price of residential properties at the bottom end of each of the small, medium and large size categories (determined according to the lower cut-off point in terms of the size range of houses in each category) and calculating the minimum gross income a household in each region should earn to qualify for a 100% mortgage on a residential property, of which the monthly repayment does not exceed 30% of the gross monthly income.

From this analysis, the number of households per size cut-off that are above the minimum annual qualifying income in each region is determined. This number, or percentage, of
households is regarded as the potential size of the housing market in each region.

Based on this analysis, 1 792 994 households in South Africa (or 14,4% of the total number of 12 445 791) were able to afford a residential property of 80m²+ in 2004, taking into account the abovementioned assumptions. In 2004, the potential market size for houses of 140m²+ was 1 296 519 households, or 10,4% of the national total, whereas the potential market size for houses of 220m²+ was 1 035 692 households, or 8,3% of the national total in 2004.

The relatively low percentage of households that were able to afford a house at the abovementioned size limits in 2004, was the result of a skewed distribution of income in
the country. Just more than eight million households in South Africa (64,4% of the total) earned an income of up to R54 000 per annum in 2004; about 2,4 million households
(19,5% of the total) earned an income of between R54 000 and R132 000 per annum in 2004; around 1,3 million households (10,5% of the total) earned an income of
between R132 000 and R360 000 per annum in 2004; and about 700 000 households (5,6% of the total) earned an income of R360 000+ per annum in 2004.

In each of the three categories of housing, Gauteng was the province where the largest percentage of households could afford to buy a house of the abovementioned sizes last year. This was the result of the fact that Gauteng was the province that had the highest level of income per household in 2004.

The Eastern Cape was the province where the smallest percentage of households could afford to buy a house in any of the three categories in 2004, mainly because this province had some of the lowest levels of income per household last year.

In the case of the major metropolitan areas in South Africa, Johannesburg North and West were the areas where the highest percentage of households in all three categories
were able to afford to buy a house last year, followed by Pretoria.

Cape Town emerged as the metropolitan area in the country where the smallest proportion of households could afford to buy a house of 80m²+, 140m²+ or 220m²+ in 2004. This can most probably be ascribed to house prices being, on average, relatively high in the Cape Town metropolitan area, whereas income levels were lower compared with some other metropolitan areas in the country.

At provincial level, Gauteng had the highest average annual income per household of all provinces in South Africa in 2004 (R130 982), followed by the Western Cape (R107 506). The rest of the provinces all had an average annual household income of less than the country average of R79 488 in 2004.

At metropolitan level, Johannesburg North and West had the highest annual average income per household at R251 959 in 2004, followed by Pretoria at R205 557, Johannesburg Central and South at R117 961, Cape Town at R112 020, Durban at R110 603, the East Rand at R105 399, Bloemfontein at R97 262, and Port Elizabeth-Uitenhage at R89 866.
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