Locked down, but not locked out – property market recovering

More than three-quarters of home loan applications being approved by banks

First-time homebuyers making hay while the sun shines on low interest rates

Dire predictions have abounded, of a residential property market in crisis post-lockdown, with projections of enforced drops in selling prices, supply far outstripping demand and cash-strapped consumers unable to afford the monthly repayments on their home loans. With Level 3 of South Africa’s lockdown regulations nearing the third-week mark, we can start assessing how accurate these sombre estimates were.

The good news, says Jors van Niekerk, CEO of MortgageMax, is that it would appear these gloomy forecasts went a little too far over to the dark side. “There is a long way to go, and the pandemic has not yet peaked in South Africa, but the easing of the lockdown and the resultant return to work of real estate agents are combining to revive the property industry. Not only does this bring a much-needed boost for thousands who depend on it, either directly or indirectly, for their livelihoods, but it is also a good sign for our national economy.”

His optimism is based on three factors:
• Number of home loan applications
• First-time homebuyers entering the market
• Percentage of home loan approvals by banks

Number of home loan applications
In line with the economic restrictions imposed by the lockdown, home loan application numbers were down in April and we saw a 70% drop year on year, but in May this improved to only 30% lower year on year. Thus far in June, numbers are outstripping pre-pandemic targets. “This could be either pent-up demand, or low interest rates driving demand. Either way, we are hopeful that this means a recovery could be on the cards,” says Van Niekerk. “If this continues, and we are optimistic that it will, we could be looking at a meaningful recovery in the residential property market and sooner than anticipated, at least with regards to home loan applications and the approval of bonds by the banks.”

First-time homebuyers entering the market
With interest rates at 50-year lows and the transfer duty limit having been bumped up to R1 million, in what now feels like a distant National Budget speech in February, first-time homebuyers really are in the pound seats right now. There have been four rate cuts already this year, the Reserve Bank signalling its clear intention to prop up cash-strapped consumers, which appears to be having some effect, at least.

One of the greatest benefits this brings is that for many long-term tenants it now becomes cheaper to buy than to rent – hence the entry into the market of so many first-time homebuyers. MortgageMax has seen a great deal of positive activity from this segment of the market, with 70% of home loan applications residing in this category. The approval of bonds for first-time buyers is also at the highest it’s been for three years, suggesting that a good number of these applications are well placed in terms of both the buyers’ affordability and the sellers’ price points.

Van Niekerk says, “These numbers tell us the market understands the current scenario. Interest rates are at levels last seen half a century ago,
and plentiful supply of property for sale is allowing prospective buyers to negotiate good prices. This makes conditions the most favourable they’ve been in decades for people wanting to get a foot on the property ladder – the best opportunity new buyers have had to acquire property in many years!”

Percentage of home loan approvals by banks
MortgageMax figures show that South Africans’ interest in buying residential properties is being backed by the banks’ willingness to lend to
prospective buyers who are in good standing financially. Van Niekerk admits, “There was concern about banks’ lending requirements becoming more stringent and home loan applications possibly being turned down due to the greater risk posed by uncertain conditions of employment. But, the latest figures are encouraging in terms of the banks’ willingness to lend to buyers who have been through the pre-approval process that MortgageMax conducts. In fact, for May 2020 the bank approval rates are between 70% and 80% and this gives us great hope for the coming months.”

What to look out for, next
Looking ahead, the next thing to keep an eye on will be the price points at which properties are being sold. Predictions about downward trends cannot be accurately assessed yet. More property transfers would need to go through the Deeds Offices before the prices being achieved by buyers during and after the lockdown could be compared.

MortgageMax believes that properties under the R2.5 million mark will hold up strongly and could even experience price growth, but at the
higher end we are likely to see property prices under downward pressure.
But what is important right now is that activity in the property market has not ground to a halt. In fact, it is picking up. This shows that the pandemic did bring about the expected slowdown, but that a healthy recovery is gaining strength and providing a vital shot in the arm for the national economy as well.

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