South Africans are buying property as if it is a Black Friday sale
Category Industry News
Boosted property sales, initially thought to be pent-up demand has continued for the past four months - but sentiment is divided on whether it will continue into 2021.
Since early-2014, the more commercial property-driven Corporate Mortgage Advances growth rate has significantly, outpaced the strongly residential-driven Household Mortgage Advances category for most of the time.
However, the strong recent divergence in strength between the now relatively strong Residential Property Market and the weaker Commercial Property market may see Household Mortgage Advances become the relative "outperformer" in the near term.
Siphamandla Mkhwanazi, FNB Senior Economist says property prices have remained resilient - as the aggressive reduction in interest rates (and mortgage rates), good pricing and lower transfer duties have "momentarily improved mortgage affordability and incentivised renters to buy property".
Industry-wide data shows bourgeoning home buying activity, with the volume of mortgage applications reaching multi-year highs.
"Year-to-date, applications volumes are approximately 9% above the same period in 2019. However, approvals lag as lenders apply caution amid an uncertain economic outlook, only outpacing 2019 levels by approximately 1.5% year-to date.
"In our view, activity is shored up by lower interest rates, attractive market pricing, lower transfer duties and the changing housing needs due to the pandemic. Furthermore, liquidity in the market has remained relatively intact," says Siphamandla.
Samuel Seeff, chairperson of the Seeff Property Group notes their approval rates are still at over 80% and that "some two thirds of buyers are still securing full or close to full bonds".
"We never thought we would be seeing a sustained market rally this long after the April-May Covid Lockdown, but it seems that South Africans are buying property as if it is a Black Friday sale," says Seeff following the company's best October sales in almost six years.
Is the momentum sustainable?
Mkhwanazi says the improved affordability (lower acquisition and repayment costs) and increased demand has, inadvertently, offered sellers a bit more room to negotiate.
"The FNB Estate Agents Survey shows that the average discount from the listing price has pulled back somewhat, from 13% in 1Q20 to 11% in 3Q20. As a result, price reductions have not been as large as initially feared, underpinning resistance in house prices. Notwithstanding, income pressures pose a significant downside risk in the coming quarters.
"For instance, if job losses spread to more white-collar occupations, we should expect further weaknesses in house price growth into 2021.
Seeff, however, believes it "will carry on well into 2021".
"The market remains driven by the low to mid-price segments to about R1.5 million and up to R3 million in some areas, largely buyers who need home loans. These are predominantly buyers with fixed incomes who are not particularly affected by the Covid pay cuts which we have seen in industries such as tourism and more informal sectors."
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More interest rate cuts on the cards?
Seeff says further that inflation continues dipping, being down to 3% for September and now at the bottom of the Reserve Bank's target range. This makes a strong case for a possible further interest rate cut of 25bps this month to stimulate the economy given that most sectors, unlike the residential property market, remain muted.
Inflation is at the lowest level since 2004/5 and less than half of what it was following the 2008 Global Financial Crisis when it spiked to over 10.99% before going down to 7.12% in 2009.
"At the very least, the low interest rate should remain until late into 2021," says Seeff.
"We have a well-balanced market. Usually, we would expect that this level of activity would result in stock shortages, but the market is still adequately stocked. That means that prices are not running away, and buyers are still able to take advantage of the favourable interest rate and bank lending conditions."
Author: PROPERTY 24