As South Africa’s house prices continue to rise, many aspiring homeowners just cannot afford to take their first steps onto the property ladder, no matter how badly they may want to.
While rising house prices are good for investors, they can make it challenging for the average consumer to enter the property market.
There are, however, a number of misconceptions about the causes of high property prices, explains Adrian Goslett, regional director and chief executive of RE/MAX of Southern Africa.
The most common one is that developers cause property prices to increase by building new homes in suburbs, thereby attracting new waves of buyers. But this is not the case.
“The truth is that developers often only come to a suburb because they are drawn to its profitability. This means that house prices in the suburb were probably already on the rise (or well on their way towards it), which is what made the area attractive to developers.”
Rather than being the cause of rising house prices, he says developers are the by-product of them, and can act as the outward confirmation that demand for an area is on the up.
Platforms that allow short-term holiday rentals can also, in part, be to blame for high rental prices. Because homeowners are choosing to offer the property for short-term letting year-round, fewer homes are available for long-term letting. This leads to a decrease in supply, which then causes prices to increase.
The main culprit behind both these causes, however, is supply and demand.
“When demand for housing outstrips supply, prices automatically increase. Even when new developments appear, the available stock seldom fully satisfies the demand.”
Goslett says it is useful to keep in mind that not only first-time buyers are looking to snatch up affordable homes. Real estate investors and share portfolios are also on the market for their next investments and often like to purchase within new developments.
“Barring some sort of economic crash, property prices will inevitably continue to increase over time. That’s why I always recommend that the sooner you can enter the property market, the better. Rent also increases every year, which means that it’ll become increasingly difficult to find the spare cash to keep saving up for your first home.”
IOL Business