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If you consider yourself a middle-class South African, then you probably are or know someone who is being forced to sell their property to ensure their pockets don’t become threadbare.

That’s because, for many middle-class Saffas, a large portion of their equity is tied up in their homes, or retirement savings.

It is at this point that the owners often realise that the price of their property – purchased for, say, R3 million around a decade ago – is barely worth that or more today, which means they’re selling for a much lower price than expected, not to mention the added las of how long it takes to find a buyer.

Welcome to the destruction of middle-class wealth due to the steady collapse of the residential property market, thanks, in part, to the increase in emigration or semigration, noted Moneyweb.

To keep up with inflation, and in an ideal world, that R3 million house bought in 2014 should be worth around R4.9 million today. However, with the exception of Cape Town and its surrounding areas, most properties have not appreciated to this degree at all.

This trend isn’t exclusive to the upper-income demographic as it is affecting properties across different price brackets, applicable to even R600,000 studio apartments and R1.5 million homes in ‘well-to-do’ neighbourhoods nationwide. However, it’s notably pronounced in the market segment above R2 million, partly due to migration patterns.

Those who are unlucky enough to still own investment properties are sitting with exactly the same problem, compounded by the fact that they’re funding the shortfall between rental and the all-in monthly cost of the townhouse (bond repayments, levies, maintenance).

People have been sharing charts on social media showing the ‘underperformance’ of SA’s residential property market in real terms, especially when factoring in inflation. Straight after the global financial crisis of 2007/ 2008, property prices stabilised for about a decade, which means that growth in house prices just about kept up with inflation.

The last three years have seen a different trend, with a struggling property market seeing house-price growth fall below the inflation rate.

A stuttering economy, interest rates at multi-decade highs, load-shedding, and emigration sales above their long-term average mean a struggling residential property market.

Middle-class South Africans struggle in this market since the majority of their wealth is tied up in their physical property and retirement savings (typically a pension fund or retirement annuity).

With primary residences, the theory has always been that nearer retirement, they’d be able to ‘bank’ the equity from their paid-off homes and downscale, with the difference (‘profit’) being used to supplement their existing retirement savings.

But with property values not meeting expectations, especially for those nearing retirement, homeowners can do nothing but watch their wealth plummet.

The trouble continues as investors have observed investment funds failing to meet their growth targets as well. While certain funds have maintained pace with inflation, they haven’t achieved substantial outperformance. Global markets, particularly in the US, have performed significantly better, yielding higher returns compared to the Johannesburg Stock Exchange (JSE), which has lagged behind.

This “near-catastrophe” can be avoided with a change of strategy for those with longer time horizons until they reach their 60s

[source:moneyweb]