Young South Africans May Be Buying Fewer Homes - But They’re Making Their Property Investment Count

South Africa’s new generation of young, would-be homebuyers are eager to set foot on the property ladder – but they may be waiting for market conditions to change before they take the plunge.

 Lightstone data shows that while the total number of homes purchased in South Africa over the last five years has declined by 13%, the shift in buying behaviour of those aged between 26 and 35 is particularly noteworthy. Between 2018 and 2023, the number of homes sold to these young adults has declined by 25%, with this demographic contributing only 27% of total property purchases in 2023.

 “Much of the decline in first-time homebuyer demand is due to this demographic’s particular sensitivity to interest rate hikes, with many eagerly anticipating the hoped-for rate cuts in the last quarter of 2024,” shares Gavin Lomberg, CEO of ooba Home Loans. “With June being Youth Month – a time to focus on youth empowerment – it’s clear that more needs to be done to ease accessibility into the property market and reverse the growing trend of young, would-be buyers putting their dream of homeownership on hold.”

 This is substantiated by ooba Home Loans data which shows that the average age of first-time homebuyers has increased by three years over the last decade, now at 36. The volume of home loan applications from first-time homebuyers has also declined from a peak of 56% of all applications received in June 2020, to 46% in May 2024.

 “The good news is that ooba Home Loans statistics do indicate that a sizeable portion of younger buyers are leveraging property as a wealth-building strategy, estimating that 15.3% of buyers aged between 18 and 25 are repeat buyers,” says Lomberg.

 Young South Africans can use property as a tool for building generational wealth

 Lomberg shares that while economic constraints have played a role in reduced first-time homebuyer demand, some misconceptions about homeownership still exist among the younger generation – in particular, that it is always cheaper to rent rather than to buy.

 “However, using ooba’s May 2024 average first-time homebuyer purchase price of R1.19 million as an example, the monthly instalments of R12,896 may actually be less than what you would pay to rent the same property in certain parts of the country. Plus, you’re making a savvy investment in your future by paying off your own bond rather than someone else’s.”

 He adds that young people should also view property as an effective tool for building generational wealth, defined as the financial resources and assets passed down from one generation to the next within a family.

 “By investing in property – particularly for the purpose of buy-to-let - you can unlock additional income streams and tax benefits, both of which can go a long way in building long-term financial security. We are pleased to note the uptick in young property investors who are following the path to generational wealth on their own, with the percentage of solo buyers aged 18-25 rising from 67% of home loan applications in 2019 to 73% in 2024 (year to date).”          

Of the remaining 27% of buyers aged between 18-25 who are pursuing property ownership via a joint home loan, a mere 6% are doing so with their spouse, indicating the rise of alternative forms of joint ownership among this generation.

 First-time homebuyers are making bigger investments and prioritising mixed-use developments

 And while there may be fewer young homebuyers in the current market, those who are purchasing their first property are paying more for it. ooba Home Loans data shows that the average purchase price of first-time homebuyers has grown by 3.2% during the year to date compared to the same period last year, reaching a new high of R1.19 million in May 2024.

 “There is a significant trend of first-time homebuyers making larger investments,” shares Lomberg. “The average purchase price paid by buyers aged 18-25 has risen by 30% over the past five years to R1,074,858   – a significantly higher growth trajectory than buyers aged 37 and older, where the average purchase price has risen by just over 18% during the same period.”

 Regionally, the Western Cape remains the most expensive market for first-time homebuyers in the country with an average purchase price of R1.57 million. “To maximise their sizeable property investment, many young buyers in the region are choosing to purchase relatively affordable micro-apartments in mixed-use developments in high-density and touristy neighbourhoods,” shares Lomberg.

 “What these units lack in size they make up for in lifestyle amenities, including on-site retail outlets, restaurants, co-working spaces and communal laundry facilities, gyms and rooftop pools. With 24/7 concierge and security services, these units are ideal for young investors looking to capitalise on Cape Town's thriving short-term rental market.”

 Demand for investment properties among younger buyers is evident, with ooba Home Loans data revealing that buyers aged 18-25 were the age band with the second-highest jump in home loan applications for investment properties, rising from 3% of applications in 2019 to just over 9% thus far this year.

 A helping hand to get young buyers on the property ladder

 Lomberg acknowledges that while the rise of young property investors is a positive indicator of an uptick in first-time buyer demand in the near future, this route to homeownership may not be accessible to the majority of young South Africans.

 “ooba Home Loans is all too aware of the major affordability gap that still exists in the local housing market. Our partnership with the government-backed First Home Finance program (previously known as FLISP) aims to make the dream of homeownership a reality for young first-time buyers earning between R3,501 and R22,000 a month.”

 The First Home Finance subsidy ranges from R38,911 to R169,265 and can be put towards buying either an existing or off-plan home. In some cases, the upfront costs of buying a home, such as a deposit or bond registration and transfer fees can also be covered through the subsidy, significantly easing the barriers to entry of homeownership.

 Noting that the process of being accepted into the First Home Finance program can be complex, Lomberg shares that young would-be buyers can work with ooba Home Loans to determine their eligibility through a prequalification. “Here, we check their credit score, make sure that their paperwork is in order and determine what finance amount they will be approved for by the banks (and the government) helping us to deliver on our belief that affordable homeownership is a right that should be accessible to all South Africans,” Lomberg concludes.