Why has SA’s middle class lost much of their wealth?
There’s been a growing concern about the diminishing value of middle-class wealth who seem to have lost ground in South Africa over the past decade.
For many middle-class South Africans, a significant portion of their equity is tied up in their homes and retirement savings.
The diminishing value of their wealth is mainly due to the sluggish residential property market.
Homeowners in South Africa have found themselves in a difficult situation – either due to emigration or other reasons – having to sell their properties at lower prices than expected.
For example, a property bought for R3 million about 10 years ago may now struggle to fetch the same price, and finding a buyer can take a long time, writes MoneyWeb.
Ideally, to keep up with inflation, that R3 million house should be worth around R4.9 million today. However, with the exception of Cape Town and its surrounds, most properties have not appreciated as expected.
This trend is not limited to high-income areas; it is affecting properties across different price brackets, including studio apartments and houses in affluent neighbourhoods.
Investment property owners are also facing challenges dealing with the gap between rental income and the monthly costs of maintaining the property.
HOUSE PRICE GROWTH ANALYSIS
Analysts have been circulating charts showing the relatively poor performance of South Africa’s residential property market, especially when factoring in inflation.
Following the global financial crisis in 2007/ 2008, property prices stabilised for about a decade, barely keeping up with inflation.
However, in the last three years, a struggling property market has seen house-price growth fall below the inflation rate.
IMPACT ON MIDDLE-CLASS WEALTH
For many middle-class South Africans, a significant portion of their wealth is tied up in their homes and retirement savings.
The general trend for these homeowners is when nearing retirement age, they can sell their paid-off homes, downsize, and use the difference to bolster their retirement funds.
However, with property values not meeting expectations, especially for those nearing retirement, homeowners have had to watch helplessy as their wealth plummets.
INVESTMENT PERFORMANCE
Investors have also seen investment funds not meeting their growth targets. While some funds have managed to keep pace with inflation, they have not outperformed significantly.
International markets, especially in the US, have fared much better, providing higher returns compared to the Johannesburg Stock Exchange (JSE), which has underperformed.