Low interest rates, falling prices send home buyers to affluent suburbs

Home buyers are taking advantage of lower interest rates and reduced home prices.

From FNB’s data, sales activity has increased across the board, particularly in the lower to middle segments. Buyers aged below 35 are reportedly purchasing properties priced between R750 000 and R1.6 million.

“Buying has become cheaper than renting due to low interest rates,” says Siphamandla Mkhwanazi, FNB head of consumer and property economics.

Furthermore, taxes are low, coupled with reduced prices in areas considered to be affluent such as Sandton and Randburg in Gauteng and Sea Point, Cape Town.

Since the beginning of 2020, the Reserve Bank has cut the prime lending rate by a total of 300 basis points. The prime lending rate remains unchanged at 7% per annum.

FNB expect interest rates to remain low for a while, and gradually start to increase in later-2021. Loan applications are assessed on a higher interest rate to ensure that there are sufficient buffers against a sharp increase in interest rates.

From renting to buying a home

Estate agents are reporting that first-time home-buyers are taking advantage of the cheaper finance to acquire more expensive properties. These buyers accounted for almost 53% of home loans during Q2 2020, according to ooba.

Dr Andrew Golding, CE: Pam Golding Property group says SA’s young population provides the market with a solid underpinning. Nearly two-thirds of citizens are currently below the average age of a first-time buyer (34 years).

Would-be buyers looking for finance would be happy to know that banks are granting 100% loans. FNB reports an increase in the bank granting 100% loans currently, however, applications are assessed on a case by case basis.

“We attribute this increase to younger buyers entering the market, and usually they rely on higher LTVs (loan to value) to fund their purchases,” says Mkhwanazi.

Furthermore, improved affordability means that there is scope for higher LTVs (from a buyer perspective).

Mortgage applications have increased by as much as 50% compared to pre-lockdown levels. This suggests a stronger than expected recovery in appetite for buying property, according to FNB.

The bank’s data suggests that many people are moving away from renting to buying – it has become cheaper to own.

Pam Golding Property group reports a significant activity uptick with a number of sales concluded between June and August. “We’ve seen strong appetite among first-time buyers entering the property market,” says Dr Golding.

Those renting are taking advantage of the low rates and zero transfer duty payable on properties selling below R1 million. Many millennials seem to be looking at getting apartments and ‘settling down’ for now.

Currently, interest and activity in seen in properties priced between R2.5 million to R8 million countrywide.

Top suburbs for property buyers now

Historically low interest rates  are a contributing factor to increased property sales activity. Price correction in some areas in recent years has represented a ‘once in a lifetime’ opportunity for buyers, according to Dr Golding.

The group recorded increased activity from June to August driven by realistic pricing expectations and motivated sellers. This has resulted in many buyers now affording to buy in the so-called affluent suburbs.

Well-priced properties in sought-after locations countrywide, and particularly in the Western Cape attract strong buyer interest. “There is currently strong demand from buyers and investors. Properties that  fail to attract good buyer response require urgent reconsideration of the listing price.”

Cape Town’s Southern Suburbs, City Bowl and the Western Seaboard through to Langebaan are popular suburbs for buyers.

Areas including Hyde Park, The Parks (Parkwood, Parkhurst, Parkview and Parktown North), Norwood and Rivonia are hotspots in Johannesburg. Fourways top suburbs for buyers now include Paulshof, Sunninghill and North Riding. In the East: these include Senderwood, Linksfield, Greenstone and Dowerglen, while Eagle Canyon is an attractive area West of Johannesburg. Meanwhile, KZN North Coast popular areas include Durban North, Umhlanga, Umdloti and Ballito.

Is this home buying frenzy sustainable?

Agents report that there has not been any significant increase in new stock coming onto the market versus ‘normal volumes’.

Lockdown has provided many South Africans with an opportunity to reassess their property needs and perception of home. This is currently seeing a positive wave of change wash through the residential property market.

There are still those selling due to lifestyle changes, downscaling as adult children leave home or retiring for example.

Dr Golding says questions remain regarding the sustainability of the current high levels of activity in the housing market. This particularly as the full economic cost in terms of revenue lost and job losses is still far from clear.

Some families are choosing to live together to save costs, namely multigenerational living. Others are relocating provincially to a more relaxed lifestyle in a second-tier city. Some are upsizing to satisfy the need for work-from-home space and more outdoor space. “In this regard, we are seeing a shift back to freestanding homes with garden cottages, and an increasing demand for homes in secure lifestyle estates,” he adds.