Someone on your site asked a question about property values in relation to income. For some reason in this country nobody has heard of the old yardstick that "healthily" priced properties are about 3.5 times the average annual income.
Obviously this yardstick is problematic in SA. I know Thabo Mbeki's "two economies" theory has taken extreme flak, but the fact remains that we've got maybe 250,000 people who earn more than R400,000 per year, then another 3 or 4 million who earn perhaps R100,000 p.a., 20 million who earn between R40k and R90k, and finally 20 million who live on under $2 a day, or under R6,000 per year.
So the question is this: when we look at 3.5 times earnings, which group are we looking at? I don't think we should look at the top group, because they top end of the market is always in Cloud
Cuckooland, whichever country it happens to be. I'm sure you could still fork out two or three million US dollars on mansions in disaster zones like Liberia and Zimbabwe. Not that you'd want to, but it just shows that property prices in the top end of the market have no
correlation to the overall health or stability of a country. Just because Pam Golding sells a chunk of Clifton for R20 million, it doesn't mean prices in Durbanville aren't crashing...
This suggests to me that we're left with two core property-buying groups in SA: the R100k crowd, and the much larger R40-90k crowd. Two economies, and therefore two markets.
Does this mean that we should be looking at average 3-bed houses / 2-bed flats in all but elite suburbs to average R350,000?
Likewise do your township/lower working class suburban houses need to average R210,000 before they're healthily priced?
It seems logical, but it's still a little shocking: if Absa says the average price is somewhere in the 900k's, does that mean we've still got to undergo a 60% drop to get to R350,000?
Or is the 3.5 rule only really applicable in stable, more equal societies?
28 July 2008
Discussion Thread: Income Vs Property Values - Is 3.5X Income Sufficient?
Following this comment in our Saturday Open Thread, longtime reader Bean Counter sent the following email: