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SA’s property trends show that the residential sector was helped in 2020 by many buyers taking advantage of low interest rates.
Like many industries, the residential property sector felt the impact of Covid-19 and lockdown effects.
Myles Wakefield, Wakefields Real Estate CEO, says the market was a rollercoaster ride – stopping, starting, then coming to a complete halt.
“In June when the sector could trade again, we experienced a surge in buying which has continued since,” says Wakefield.
Buying activity was fuelled by the 50-year low interest rates, the banks’ generous propensity for granting loans, and to some extent, pent-up demand.
Property experts and estate agents say property trends including low interest rates and falling house prices have reignited the sector.
“The resilience of SA’s housing market reflects ongoing aspiration for home ownership,” says Dr Andrew Golding, Pam Golding Property group CE.
He says in many ways the pandemic has not introduced new trends but rather has significantly accelerated existing property trends. These include the move to online, remote working and the shift to co-working, according to Dr Golding.
We take a look at some of the property trends that played out in the residential sector in 2020.
- Banks have loosened purse strings
With low interest rates, banks have loosened their purse strings, while still thoroughly assessing all loan applications.
According to Siphamandla Mkhwanazi, FNB Senior Economist, year-to-date, home loan applications volumes are approximately 9% above the same period in 2019.
Data from ooba shows that buyers are entering the market for the first time or upgrading to bigger properties.
By Q3 2020, demand for 100% bonds among ooba’s home loan applicants reached a 7% year-on-year high compared to Q3 2019.
The lower, or zero-deposit, bond is a factor that ooba highlights. According to the mortgage intermediary, 63% of buyers purchased property without making a down-payment, of which 82% were successful in obtaining finance.
- Falling house prices
Lower property prices are still the number one driver for positive buying sentiment, according to the Absa Homeowner Sentiment Q3 2020.
Of the respondents, 38% cited said lower prices as the driver of buying sentiment.
Lower prices have been one of the property trends that has seen many finding property more affordable in traditionally affluent suburbs like Sandton. According to FNB, most buyers are purchasing property priced below R1.5m.
Property cycle expert Erwin Rode, Rode & Associates MD, says in real terms, house prices have been declining for years.
Nationally, nominal house prices grew by 2.6% in October 2020, and by 1.8% in the first eight months of 2020.
House price growth in real terms has continued to decline averaging 3.3% so far in 2020, according to the Rode Report Q4 2020.
“We have doubts about the sustainability of the current rising house prices given the negative impact on household finances. This could ultimately outweigh the impact of lower interest rates leading to forced selling should interest rates increase,” says Rode.
The report notes that properties valued between R250,000 and R700,000 have seen faster house price growth.
- First-time buyers entering the market
One of the property trends that characterised the market in 2020 was that of more first-time buyers entering the market.
Most of these buyers were renting, and now find that buying property is now more affordable.
Data from Lightstone show that a large number of first-time buyers are purchasing properties priced between R700,000 and R1,5m.
Reasons include the correction in house prices and the fact that younger people save longer before committing to home ownership
“With a population of predominantly ‘young’ buyers, the increasing demand for property helps drive activity in the residential property market. If managed correctly, homeownership is one of the best ways to create wealth,” says Dr Golding.
- Low interest rates
The Reserve Bank has cut interest rates by 300 basis points. The prime lending rate is currently 7% per annum making home buying affordable.
Rhys Dyer, ooba CEO, says interest rate cuts throughout 2020 contributed to a revival in the property market.
“Buyers who previously could not afford a property are entering the market for the first time due to lower interest rates,” says Dyer
Marcél du Toit, Leadhome CEO, says buyers are trying to get the highest bond amount possible while interest rates are low.
“Fixing rates is one of the property trends we expect to see accelerate in 2021, while many people are upscaling.”
Leadhome figures indicate that buyers are looking at properties that previously they may not have been able to afford. “There is a visible shift in the number of enquiries on properties above R1.5m,” says Du Toit.
- Rental market taking strain
As tenants turn to property owners, buy-to-let investments are hit by double-digit vacancy rates and flat rentals.
High rental vacancies is one of the factors that have characterised buy-to-let investments in South Africa.
Flat vacancy rates rose further to 13% in Q4 2020, from 11% in Q3 2020, according to the Rode Report.
High vacancies have led to weaker rental growth. Nominal flat-rental growth slowed to 2% in Q3 2020, according to Stats SA.
Rentals are under pressure due to oversupply, and this is likely going to continue in the near future, says Rode.
Nationally, rental price growth reached lows of 1.0%, according to the PayProp Rental Index Q3 2020. The Western Cape remains the most expensive place to rent property with rentals averaging just over R9,000 per month.
According to the TPN Rental Index Q3 2020, 74.57% of tenants were in good standing from 73.5% in Q2 2020.
Tenants renting properties priced below R3,000 and +R25,000 per month were poor payers and mostly financially under strain, says Michelle Dickens, TPN MD.
Of the nine provinces, Gauteng was the worst-performing province, with 71.85% of tenants in good standing, according to TPN.
- Selling time reduced
According to FNB Property Barometer November 2020, it takes 10.6 weeks to sell property in South Africa. In the first quarter of 2020, it was taking 13 weeks, and 16 weeks in Q3 2019.
Estate agents say well-priced properties continue to sell well with some properties selling within days of listing. However, properties in the top-end of the market still take longer to sell.
The bank reveals that sellers are also giving discounts from listing prices, with these averaging 11% in Q3 2020 – which has improved from the 13% in Q1 2020.
RE/MAX Living in Cape Town reports that properties priced above R6m reduced asking prices by an average of just over 19% between June –September.
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