And in that regard it’s useful to focus on the middle class, which forms the backbone of most markets and is usually a pretty reliable indicator of which way things are trending.
There are of course a number of different definitions of what it means to be middle class, or what middle class people earn, but those used by Credit Suisse in their 2015 report found that middle class South Africans account for 13,7% of the country’s adult working population, which it estimated at 31,4 million.
These also accord quite well with the figures produced by the Unilever Institute of Strategic Marketing at UCT, which reported in 2013 that the middle class consisted of about 4,2 million individuals living in households earning between R15,000 and R50,000 a month. Although it must be noted that a combined income of between R15,000 and R25,000 per month fall into the affordable housing bracket for some lending institutions and deposit requirements might vary.
The adults in these households, it said, could be expected to have their own transport, a tertiary education, employment in a white-collar job and their own home or a rental home costing at least R4,000 a month.
Allowing for inflation-based salary increases since then, households would currently need earnings of between R18,000 and R59,000 a month to qualify as middle class - and would need to spend at least R5,000 a month on rent or a bond repayment.
Thus, the minimum home purchase price for a middle income household currently is around R575,000, including a 10% cash deposit and assuming it is funded via a home loan granted at the current prime lending rate of 10,25%.
At the other end of the spectrum, using the same accommodation cost to salary ratio, the maximum home purchase price that middle class households can afford is R1,85m, also including a 10% deposit and assuming they are able to obtain home loans at prime.
Naturally, there are many other factors that may influence the purchasing power of individual households, including their credit ratings and other monthly financial commitments, as well as factors beyond their control such as interest rate increases and hikes in food prices and electricity costs.
However, the above calculations should give home sellers a better idea of how many (or how few) buyers they can expect to attract at various price levels - especially since the higher income adults earning more than R60,000 a month are currently estimated to make up only 1,1% of South Africa working population.
