FINANCE FEATURE: High interest rates wrecking young homeowners’ dreams

There comes a time when all birds must fly the nest and leave the comfort of their parents’ home, but for Generation Z, the time is nigh, and it seems there may be nowhere else to land.

“Out of reach.” “Impossible.” “Unaffordable.” These are the words used by members of Generation Z (Gen-Z) on the possibility of buying their own house in their twenties, according to an experimental Instagram poll of 38 respondents run by Wits Vuvuzela.  

However, a 2022 Rocket Mortgage survey revealed that 72% of their Gen-Z sample (2000 people of ages 18-26) are highly motivated to buy a home in the near future but, as interest rates reach their highest peak in 15 years this month, buying a house in South Africa is more expensive than ever.  

The South African Reserve Bank responded to a world-wide increase in inflation rates, which neared the 8% mark in South Africa at the end of 2022. Raising the bank repo rate to 8.25% meant that the prime lending rate rose to 11.75%, the highest it has been since the aftermath of the 2008 financial crisis. A higher lending rate means that taking out large loans from a bank, such as a bond on a house, becomes more expensive. For younger generations hoping to live on their own, this has added another obstacle to an already almost impossible dream. 

“Unfortunately, it is very difficult for young people to purchase property in this country. The current interest rates are higher than they have been in years, economic times are hard – many young people don’t have good credit scores which negatively affects their lending profile and many young people are not aware of the upfront costs that are required when purchasing a property [bond and transfer costs],” says Rob Pound, a real estate agent working in Johannesburg.  

The latest FNB property barometer reveals that first-time-buyer numbers are on the decline and the average age at which South Africans can afford their own home is 35. The report cited the rising cost of living, inflation rate and unemployment rate as causes for so few people in their twenties affording homes of their own.

This is supported by real estate agent Ronald Oliphant, a Braamfontein area specialist who said that he has seen fewer young people looking to buy or rent properties this year. Braamfontein, Ferndale and Fontainebleau remain popular areas for young first-time buyers in Johannesburg, but the latest Lightstone report indicates that only 18% of stable homeowners in Ferndale are under the age of 35. This number decreases to 16% in Braamfontein and 5% in Fontainebleau. 

For those young people who overcome financial burdens and manage to buy their own homes, the struggle does not end there. “I once had a client who was 27 years old and he found one of my properties, which was R850,000. He said he could afford it because the bond repayments would be the same cost as the rent he was paying at the time, and he was so excited to be purchasing a property rather than ‘paying someone else’s bond,’” said Pound.  “He wasn’t aware of the upfront transfer and bond costs that are required when buying property, which in his case were around R56,000. He had to come up with this money in two months in order to buy the house, but he was living hand-to-mouth, there was no way he could afford it.” 

South African banks, aware of this difficult situation, are open to giving first-time home buyers a bond of 105% in order to cover the upfront costs for properties under the value of R1.8 million. However, for this young buyer only one South African bank offered to grant him this deal.  

Jesse Van Der Merwe (24), a recent Wits engineering graduate also decided to invest in her own property when she started her working life, however, after buying her own apartment, realized that she could not afford to keep up with the day to day costs of owning a property and living alone. “I realized that I can’t really afford to live [in the apartment] and like…eat, so I’m renting it out while I stay at home until I can actually afford to move into it.” 

With unaffordable upfront costs and bond repayment rates, many young people who can afford it are pushed into renting property instead. This has led to a high demand for rental properties which, according to the FNB report, has made rental costs in Johannesburg more expensive in recent years. “Real-estate is simply supply and demand,” said Pound.  

According to Oliphant, a tenant may only be considered for a property if the rent does not exceed one third of their income, but, as rental rates increase due to high demand, many young people apply for rentals that they do not comfortably afford.  

Julia Rolle (24), a 2D character animator from Johannesburg who works remotely, made the decision to move away from the city to the seaside town of Wilderness on the garden route. To afford the rent on what she refers to as a “teeny tiny place”, Rolle pays 35% of her income on rent. When asked if she has had to sacrifice paying for other things for her accommodation, she answered, “Of course, but I wouldn’t trade the independence and having my own space.” 

Interest rates have remained steady the last two months as inflation begins to slow, giving hope to young home hunters that the situation might yet improve. However, in a press conference held on July 20 in Pretoria, Governor Lesetja Kganyago said that the interest rates have not yet peaked, “Is this the end of the hiking cycle? No it is not. It depends on the data and the risks. That’s what it boils down to.”  

In such an economic climate, some young people such as Jennifer Greef (25) have no choice but to stay in their family home for longer than they planned, “I do think I could move out, but my living conditions at home are just so much better than what they would be if I moved out because I would have to move somewhere really small,” she said. “I think still living with my parents is the right way to go about things right now because then I can save and spend my money on other things such as insurance and medical aid rather than rent.” 

FEATURED IMAGE: Feature Image: A real estate agent hands over keys to a young gen-z as they buy their first home. Photo: Kimberley Kersten 

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Most Wits eateries to remain affordable amid soaring food prices

The financial pressure on students at Wits will not come from what they eat this year, if buying exclusively from on-campus restaurants.

Food outlets at Wits University have maintained 2022’s prices despite a 12,4% increase in the price of food and non-alcoholic beverages over the last year, as noted by the Stats SA Consumer Price Index (CPI) report , released in January 2023. Kara Nichha’s, on Wits’ East campus sells various Indian foods, including samosas at R4.00 and a soya burger at R20.00. It remains one of the most affordable places to grab a meal on campus.

The latest Food Basket Price Monthly Report by the National Agricultural Marketing Council (NAMC) shows that the price of onions, an ingredient in some samosas, increased by 47% while sunflower oil prices increased by 28.1% year-on-year. Manager, Malvina Mogano, said that the restaurant’s strategy to keep prices low includes using soy instead of meat.

Generous servings keep students coming back to Kara Nicha’s. Photo: Mpho Hlakudi
A customer getting their daily fix. Photo: Mpho Hlakudi

Kutlwano Serame, a regular customer, said, “Kara Nichha’s is a good place for [buying food], especially when you want to introduce first years that are struggling financially, especially in terms of having access to food because you can literally come here for R20.00 and you’re sorted for lunch.”

At Wethu Coffee Shop, in Solomon Mahlangu House, directly sourcing from farms is how costs are kept low said café manager, Valentine Nomvuyo.

The coffee bar is open weekly from 7am to 5pm and serves coffee and hot meals. Food prices range from R15.00 for a date and raisin muffin to R55.00 for a lunch meal. Nomvuyo said their breakfast combo special, the americano coffee and breakfast wrap, which costs R48.50, is among their best-selling items.

However, according to the NAMC study, the price of white bread, the main ingredient of their toasted sandwich, has increased by 20,4% year-on-year. Thando Gasa, a regular customer at Wethu Coffee shop, said, “They have really nice wraps, and they are affordable.”

But Jimmy’s Varsity, with outlets on East and West campuses, has announced that their prices will go up in the middle of February. The eatery sells various Halaal foods, from their Original Kota at R19.00 to a Hot Chicks family meal at R199.

The restaurant’s West Campus manager, Sandile Simango, said they are forced to raise menu prices because of skyrocketing costs from their suppliers. “Prices are getting higher and [inflation] is rising, making it harder to make a profit,” said Simango.

Lauretta Masiya, an employee at Jimmy’s, said that they have been told to “watch” portion sizes when orders are prepared, in an effort to remain profitable. “It’s not going well because customers tend to complain a lot… and we want the customer to be happy [but] at the same time, we also want the boss to be happy. It’s very challenging,” said Masiya. Unfortunately, the Bureau for Food and Agriculture Policy (BFAP)’s latest food inflation brief suggests that food prices could rise even higher, which may force many more campus eateries to raise their prices.

FEATURED IMAGE: A barrister prepares coffee for a customer at Wethu Coffee Shop. Photo: Mpho Hlakudi

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Fuelling the price of food

When petrol prices increase,  food prices also increase. Prices at the Matrix, Pig and West campus have increased, making it difficult for students to afford simple meals.

“A fall in petrol price doesn’t mean a fall in food prices. It just means food prices will rise at a slower rate”, said economist Chris Hart on eNCA news

A litre of  95 octane costs R12,47 in Gauteng,  a fall from R13,20; R12,24 for 93, R11,41 for 500ppm diesel and R11,45 for 50ppm diesel.

The sudden reduction of 73cents is a result of the rand dollar exchange rate and the oil price. Last month the rand strengthened (against the US dollar) and the oil price declined, which led to a decrease in the petrol price.

Lebohang Moeletsi, a strategic management student at Unisa, doesn’t think the fall in the petrol price will be significant to consumers: “the decrease in the petrol price will not have a significant impact on administered prices”.

Moeletsi said this was because the recent large increases in the petrol price have already been built into what consumers pay and the “current decrease is negligible in comparison”.

The reduction in the petrol price comes after some steep increases in recent times. Two and a half years ago, a litre of 95 octane petrol cost just R8,32 in Gauteng.

What this means for Witsies is that the decrease in petrol prices is relatively small compared to the increase in the daily spending on food. The fact that the petrol price has declined by 73cents doesn’t necessarily mean we will have more money to spend.

Another worrying factor is that the petrol price is very volatile which means we may see another substantial increase before the end of the year.

Fuel price hike worries students

SOME Wits university students have raised concerns of decreasing spending power on the back of rising fuel prices.

There are talks of an imminent fuel price hike in all grades of fuel this month, an increase of 82 cents from the current price.

Economist at Economics.co.za Mike Schussler said a fuel price hike is definitely on the cards, which has grave knock-on-effects on other living expenses.

“Inflation will go up and the average motorist will fork out R109 more per month on fuel. The average increase since December (2012) is about R250pm”, Schussler said.

Lucia Martinengo, 1st year BA, said fuel price hikes will severely impact her ability to spend on campus food.

“The fuel price is a stress in life, as I do not have money to buy food when the petrol price is high.  Either I sacrifice on buying food or spending on petrol for travel to school,” she said.

Martinengo added that fuel price increases will be a burden to her family as she currently spends R1 000 on fuel per month.

Students who find alternative ways for transport such as car pooling clubs will also feel the pinch in travelling costs and money for food. “Money is scarce for food, as my car pooling costs are currently R500 per week and with the fuel price increase my costs will be R600, the best option would be to make food at home, ” said Firdaus Shcik, 1st year BA.

Students also said they will feel additional financial pressure when the e-toll system comes into effect. “When the e-toll system comes in place it will affect me, with additional fuel prices”, said Dino Sardiaos, said 1st year BA.

Dawie Roodt, economist at Efficient Group, said higher international oil prices and the weaker rand are the main drivers of an upsurge in fuel prices. He added that consumers can breathe a sigh of relief, as economists expect a small drop in fuel prices later in the year.