House prices outrun cars

Author: Howard Preece

Johannesburg - By overall international standards South Africa still has a highly skewed relationship between house prices and car prices.

Simply put, you can generally get a great deal more for your money on the SA property market than the equivalent cash would buy in most other developed and middle-income economies.

On the other side, car prices in SA are mostly above broad median international figures.

However, the surging boom in the SA property market over 2003-05 significantly changed house:car ratios.

In 2001-02 hundreds of thousands of people in SA owned houses that were worth only two to three times the value of their cars.

There was a long slump in the real value of property from 1984 through to the late Nineties. This was a product of SA's dismal economic and political record over most of that period.

Property still relatively cheap

Car prices, however, kept bounding ahead, fuelled by inflation and the impact of an ever-falling rand on the cost of imports.

Even today, property is still relatively cheap in SA compared with car prices when measured by overall global standards.

So a low car-property price comparison ratio still holds in SA, in spite of the huge rise in the property market in this country over 2003-05.

But house price rises have now throttled back significantly. That further suggests that the various claims about a supposed dangerous "bubble" in the SA property market were always largely nonsense.

Finweek argued in its August 19 2002 edition two cars could buy you a house. Then prevailing Absa average selling price for a house of R335 000 was taken against a basic 'middle management' car costing about R170 000. That gave a car-house ratio of roughly 2:1.

Top-of-the-range market

But what about the upper-middle/upper market figures?

Well, it then cost roughly R700 000 for a top-of-the-range Mercedes S430 sedan.

But there were plenty of luxury homes in smart suburbs (and/or select golf estates) on offer at around R1.5m.

A BMW 318 went for R210 000; a Golf GTI for R206 000.

There were certainly reasonable houses available for the owners of such vehicles that just came within the 2:1 rule, but even with property struggling (prime rate was 16%, reaching 17% in September 2002) a 3:1 price ratio with such cars was more common.

Of course, there were homes selling even at that time in the R5m-R15m and more range in such AAA locations as Sandown, north of Johannesburg, and Cape Town's Clifton, among others.

The 2:1/3:1 ratio tripped out there, but this was the classic exception that proved the rule.

Current ratio

And how is the car price:house price ratio today?

Absa's basic house index for March this year was 281.5, against a base of 2000 = 100, and 122.5 in January 2002.

The price of an "average middle segment" house was up to R765 000 last month.

In summary, residential property values have more than doubled over the past four years.

Car price inflation has certainly continued - but at nowhere remotely the same rate as the soaring rise in property prices.

Also, it is much harder to compare, say, a leading benchmark car model of a few years back (let alone 20 years ago) with the supposed equivalent today than it is to do the same exercise with property.

There are "ordinary family" cars available now which - in terms of performance, features, comfort and the rest - have more going for them than luxury models that cost a literal fortune in today's money a generation and more ago.

A lot more car for your money

You now get a lot more car for your inflation-adjusted money today than you did 10-20 years ago.

Allowing for all those complications, a rough guesstimate is that while a car/house price ratio of 2:1/3:1 largely applied in SA four-five years ago that has now moved to more like 4:1/6:1.

The owner today of, as examples, a Mercedes E-class 350 Elegance (R472 000) or BMW 530 (R454 000) is most unlikely to own a house/apartment with a market value today of less than R2m.

Of course, in which part of the country you live is crucial.

Houses of similar quality and view are a lot cheaper in, say, Port Elizabeth than in Cape Town's Atlantic seaboard, in Polokwane than in Pretoria.

But this applies across the world.

The critical point is property prices in SA are not unrealistic today; rather they were hugely depressed over 1984-2000 by politics.

SA is now far more in line with world trends, even if still clearly skewed, than was the case just a few years ago.