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The near-universal lockdown of global economies earlier this year as governments attempted to contain the coronavirus is unprecedented, with the social and economic consequences of the initial lockdown and subsequent gradual easing of restrictions still unfolding, making predictions in terms of the economy – and South Africa’s housing market – extremely difficult.
The level of activity in the housing market in the months since real estate agencies were allowed to reopen (June 1 at Level 3) surprised market analysts. For example, FNB recently noted that not only has the volume of new mortgage applications rebounded beyond pre-lockdown levels across the price spectrum, the level of buyer interest seen on property portals has also surpassed levels seen in early-2020, when Covid-19 was but a distant threat.
The resilience of the local market certainly runs counter to initial expectations that residential market activity, already subdued by years of sluggish economic growth, would slump further.
However, it would seem that there are a number of factors currently driving significant sales volumes in South Africa’s residential property market. These include, among others, the impact of Covid-19 and the ensuing lockdown – including the fact that deeds offices were closed for several months, which has created a considerable pent-up demand, and the historically low interest rates, to name but two.
One of the obvious, but significant changes caused as a result of the pandemic has been the Reserve Bank’s bold decision to slash interest rates by 300bps this year to date to an almost 50-year low of 7 percent. For many homeowners, this unprecedented low, coupled with the price correction in the local residential market in recent years to more realistic levels, has resulted in a clear message that this may well represent a “once in a lifetime” opportunity for buyers.
For numerous purchasers, especially first-time buyers, this is new and appealing territory, and they are taking this message to heart – with bond originator ooba noting the surge in first-time and 100 percent bond applications in recent months. According to ooba, home loan applications rebounded in June and by July volumes were over 60 percent above year-earlier levels. In June, 68 percent of ooba’s home loan applications were for 100 percent bonds, with an approval rate of over 80 percent.
And first-time home buyers are taking advantage of the cheaper finance to acquire more expensive properties, with such buyers accounting for almost 53 percent of home loans during the second quarter, according to ooba. As we have noted previously, South Africa’s young population, with nearly two-thirds of citizens currently below the average age of a first-time buyer (34 years), provides the market with a solid underpinning.
To temper any expectations of an unrealistically buoyant property market, however, it is important to note that there has not been any significant increase in new stock volumes coming onto the market, when compared to “normal volumes”. What we have seen is that the residential property market has come out of the gates very strongly after the restart of real estate activities at the beginning of June and during July 2020, with most of this activity driven by realistic pricing expectations and motivated sellers.
Notably in the Western Cape and other sought-after locations in South Africa, well-priced properties are now attracting strong buyer interest. There is no doubt that where properties fail to attract good buyer response, an urgent reconsideration of the listing price is required as recent sales activity has demonstrated strong demand from residential buyers and investors.
Against a backdrop of the current buyer’s market, coupled with a prime interest rate at a historic low and expected to remain at low levels for the foreseeable future, savvy home buyers seeking access to finance have never been better placed to make sound investment property acquisitions across all price ranges and property types, but perhaps particularly in the price band up to around R3 million. People, including investors, have realised that now is the time to buy.
In the residential property market we are currently seeing that the main price bands experiencing the most interest and activity are those up to R2.5 million and R3 million, followed by the middle market price band between R3 million and R8 million, and upwards.
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