If you are looking for some of the most affordable homes in the world, then look no further than Pretoria.
That’s right, a study* of more than 800 000 online property listings in 73 capital cities has found that South Africa’s executive capital is tops when it comes to the affordability of homes.
The research, conducted by NetCredit, says the average home in Pretoria costs $69 975 (R1.26 million), which, although not the cheapest in the world, is the most affordable when compared to the average salary in the city.
The average price of a home in Pretoria is just seven times the average annual salary.
By comparison, and at the other end of the affordability scale, the average property in Iran’s capital of Tehran, costs 158.4 times the average annual salary.
The capital with the cheapest average home, at a price of $40 569 (R743 000), is Havana in Cuba, while the Mediterranean coastal city of Monaco is the most expensive, with an average home price of $4.475m (R80.8m).
Global house prices
The study states that Covid-19 radically shook up people’s ideas of where and how they wanted to live, and also radically altered many of their perceptions for doing so.
“On balance, prices rose; but now, in the fallout of the pandemic and with the added complication of the energy crisis and war in Ukraine, they’re on their way down. Higher interest rates and the cost of living have forced down demand for houses, although a general shortage of houses on the market has kept prices from bombing.”
Meanwhile, it says, salaries are falling in real terms – with a particularly hard impact on lower-income workers, and this further inhibits potential buyers from spending.
“According to Oxford Economics, nearly all 38 OECD (Organisation for Economic Co-operation and Development) countries, to which South Africa is a key partner, are likely to see a slowdown in house price growth, with prices actually falling in more than half of them. This would be the widest deceleration in housing price growth for over 22 years.
“And according to the IMF, real house prices could drop by 25% in emerging markets over the next three years and by 10% in advanced markets (although this is a worst-case view).”
House price growth in South Africa
In South Africa, Lightstone expects house price inflation (HPI) to be 0.9% to 3.7%, depending on the country’s GDP growth.
If the economy stagnates at 0% GDP growth and core inflation drops to 3%, Paul-Roux De Kock, chief analytics officer at Lightstone, says South Africa might experience an accelerated decline in HPI, ending the year at 0.9% with a negative trajectory for 2024.
“Under such a scenario the South African Reserve Bank (SARB) might stop the upward interest rate cycle sooner – only increasing it by 0.5% for the year, offering some consolation to homeowners with outstanding debt.”
If, however, the economy recovers sufficiently to support GDP growth of 1.1%, Lightstone expects core inflation to climb to 5.5% with interest rates increasing by 2%.
“Under such a scenario we forecast HPI to bounce back in the second quarter and end 2023 at 3.7% with strong upward momentum going into 2024,” De Kock says.
In a middle-of-the-road scenario, with the base line GDP growth expectation of 0.3%, Lightstone expects the SARB will take a moderate approach to interest rate hikes, with interest rates rising slowly by a total of 1% for the year.
“We expect core inflation to drop to 4% in such a scenario, and HPI is forecasted to continue the slow decline we’ve seen for more than a year and end 2023 at 2.3%.”
Study findings
- Most expensive capitals in which to buy a home
As a luxury mecca and tax haven on the Mediterranean coast, Monaco attracts wealthy buyers who compete for a very limited amount of property, the study states. And while one-third of Monaco’s population are millionaires, only 25% of the country’s private-sector employees live within the country’s borders, with property not just expensive but unaffordable for many.
“Monaco has the third-worst affordability in our study, with the average home costing 71.9 times the average annual salary.”
According to the research, the top five most expensive capital cities in which to buy property are divided between Europe and Asia, while just $30 000 (R542 000) separates the capitals of the United States and China in ninth and 10th position.
“While the competition for limited real estate drives up prices in smaller regions, areas such as the Australian capital, Canberra, can attribute high prices at least in part to the enormity of the houses.”
- Most unaffordable capitals for property buyers
While relative house prices can tell a lot, one needs to delve a little deeper to get a ground-eye view of what those prices mean in real terms, NetCredit explains. High prices seem “less unreasonable” if an area tends to have larger homes as you’re getting what you pay for. On the other hand, if prices are high where wages are low, it’s a tough break for low earners — regardless of the amount of bang they’d get for their hard-earned buck.
In this sense, Paris and Tehran are among the capital cities with the worst deals for home buyers.
“Looking at price per square meter, it’s no surprise that Monaco remains on top, as the average Monaco home is so much more expensive than everywhere else to start with. However, judged per square metre rather than list price, Singapore and Seoul leapfrog Luxembourg into second and third place. Paris, Tehran, and Oslo are also among the 10 most expensive per square metre, despite not making the top 10 for average prices overall.
“Small apartments and high demand – especially as EU professionals flee London post-Brexit – have pushed the price of a property square meter in the French capital over the $10 000 (R181 000) mark.”
Judged by price tag alone, the research reveals that Tehran is only the 17th most expensive world capital. However, the average home price of $547 536 (R9.8m) home is a “steep ask in a country with a minimum wage equivalent to $203 (R3 665) a month”.
“And property costs a whopping $9 955 per square metre (R180 000) due to the relative smallness of most Tehran homes. The urban area of Tehran has a higher population than London or Paris, and apartment living is the norm. While a house in Tehran may offer a spacious alternative to an apartment, inflated prices push up the average in a city that has suffered a nine-fold price increase over five years,” NetCredit notes.
European property costs
Europe’s most expensive capital city homes per square meter are clustered to the west and north of the continent, while the lower end of the table skews towards eastern Europe and the Balkans. However, the research states that a notable exception occurs in the United Kingdom.
“While London — the capital of both England and the UK — has an average price of over $8 000 (R145 000) per square metre, the capitals of Scotland (Edinburgh) and Wales (Cardiff) have averages of $3 375 (R60 939) and $2 866 (R51 700) respectively.
The Czech Republic’s capital, Prague, is the most expensive Eastern European entry, witnessing a 20.13% rise in house prices between 2020 and 2021 due to high demand. However, the study says that prices appear to be stagnating now, in a reflection of patterns seen in other regional markets, which is that the cost of living and price of re-mortgaging is causing owners to sell up in droves, thereby flooding the market with properties and dragging down prices.
The research concludes: “Homeowners will be wary of the tough times ahead and the concern that falling house prices will eradicate the equity on recently bought homes – particularly if they witnessed the downfall of the banks 15 years ago. However, lessons have been learned and the situation seems less volatile this time around. Either way, in a moment of turmoil, homeowners and prospective buyers alike will feel the urge to look around and see if they could get a better deal elsewhere — whether through lower prices, a better deal per square-metre, or a fairer affordability rate compared to local salaries.”
To find a home to buy in Pretoria, visit IOL Property.
* NetCredit analysed over 800 000 online property listings for 73 global capitals and calculated the median house price for each city in total and per square meter. It researched the average monthly net salary for each capital using numbeo.com and used this figure to calculate affordability and the number of years the average earner would need to work to buy a median-value home. The data was collected in October 2022.