Bad news about South African house prices

The average homeowner in South Africa has lost 40% of their investment in real terms in US dollars over the last ten years.

This was revealed in an analysis by Daily Investor about South African house prices over the last ten years.

From the outset, it should be noted that the analysis only looked at the value of a house and ignored other aspects of the investment, like rental income and costs.

Buying a house is widely viewed as a good investment and typically makes up a large percentage of most people’s net wealth.

One of the biggest benefits of buying property is its value typically increases with inflation. Therefore, it is seen as an inflation hedge.

Another benefit of investing in property is that you can use gearing. Simply put, you can borrow money against the property.

That means that people can use the bank’s money to buy a property and maintain its value in terms of inflation.

This was true for South African residential properties over the past decade, where house price growth exceeded inflation.

However, the situation changed when you look at South African house price growth in US dollars.

The rand has weakened significantly over the past decade – from R10.50/USD to R18.50/USD. The weaker rand means South Africa’s house prices declined when measured in hard currency.

Daily Investor used the FNB House Price Index to establish how local house prices have performed over the last decade.

We then adjusted the prices to reflect in US dollars. We used the inflation rate in the United States to calculate the value in real terms.

The analysis showed that South African house prices declined by a compounded annual rate of 4.83% over the last ten years.

Simply put, the average homeowner in South Africa lost 4.83% per year in real terms after accounting for inflation in US dollar terms.

The charts below show the average real return on South African properties per $100 invested for 5 years, 10 years, and since 2001.