Key trends in the housing market expected to gain momentum

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Developers will ramp up supply to meet the increased demand from the next generation of buyers.
Developers will ramp up supply to meet the increased demand from the next generation of buyers.
  • The CEO of BetterBond says the forecast for the next 12 months looks positive, with several key trends expected to gain momentum.
  • Data shows the average property investor in South Africa is a woman and in her early twenties to mid-thirties.
  • It is expected that first-home buyers will continue to drive the property market's recovery.

Like much of the South African economy, the residential property market in the country was also challenged by the coronavirus "new normal".

On the positive side for home buyers and bond holders, there has been a number of cuts in the repo rate - the rate at which the SA Reserve Bank lends money to commercial banks. It is currently at 3.5%, while the prime lending rate of commercial banks is at 7% - the lowest in decades.

Carl Coetzee, CEO of BetterBond, says the forecast for the next 12 months looks positive, with several key trends expected to gain momentum.

More young, women investors

"We expect more young, women investors to enter the property market," says Coetzee.

Data from credit bureau TPN, which specialises in property benchmarking, shows that the average property investor in South Africa is a woman and in her early twenties to mid-thirties. 

Furthermore, FNB data indicates that the market recovery in the R750 000 to R2 million price band is being driven by this demographic - mostly first-time buyers younger than 35. 

BetterBond's data shows that the amount required as a deposit for a bond has dropped across all price bands. The average deposit for homes of between R1 million and R1.5 million came down by 24% year-on-year, and dipped by almost 17% for bonds of between R500 000 and R1 million.

Online bond applications

Coetzee expects a growing preference for online bond applications.

"The increased appetite to apply for a bond, given the favourable interest rates, has seen buyers wanting greater control over their application process. This has resulted in the increased use of digital platforms that allow the user to control the application process end-to-end, rather than sending their documents through and waiting for feedback," explains Coetzee.

"BetterBond's application volumes were up 32% year on year in November, and this strong activity is set to continue as the South African Reserve Bank’s forecast shows that the repo rate is likely to gradually increase towards the end of 2021."

First-time buyers

First-home buyers will continue to drive the property market's recovery and resurgence, in the view of Coetzee. More than 70% of BetterBond's applications since June have been first-home buyers making the most of the favourable interest rates. 

"With no further repo rate cuts since September, there has been an almost 17% year-on-year increase in first-home buyer applications. We expect this trajectory to continue well into 2021," he adds.

So-called semigration from within SA to coastal areas and smaller towns are expected to continue as remote working changes the way people live.

Lightstone property data notes that house prices in the Eastern Cape, Kwazulu-Natal and Mpumalanga have been growing at increasing rates and they now top provincial growth with house price inflation currently above 5% per year. BetterBond has seen an increase in bond applications across all regions compared with the same period last year.  

House price growth

According to Coetzee, increasing home values in all price bands are expected with a particular interest in areas that are close to transport, work opportunities and schools. 

House price growth in the R2 million to R3 million band is strengthening, while the so-called luxury market, of R3 million upwards, will continue to be sluggish. 

"While national house price inflation will continue to slow, there will be some growth in the lower to middle price bands, as demand increases," says Coetzee.

He expects that the freehold housing market - properties where the buyer owns the land and the house - will continue to outperform in terms of house price growth. This is possibly due the lower interest rate meaning that buyers can now afford 30% more than they could in January, when the prime lending rate was 10%.

"Also, buyers are prioritising quality of life after months in lockdown, and properties that can offer a garden and space for a home office, may mean that freehold properties are more appealing," says Coetzee.

He expects that developers will ramp up supply to meet the increased demand from the next generation of buyers. 

There are no transfer duties payable on a property in a new development, making them attractive for first-home buyers. The average bond size currently approved by BetterBond is just over R1 million, which is the price point at which many new developments are coming onto the market. The largest portion of BetterBond’s bond approvals - just over 40% - are for homes priced between R500 000 and R1 million. 

He expects to see more buyers adding to their investment portfolio in the next 12 months.

Interest rates

Interest rates will remain in the single digits - and probably below 8% - throughout 2021, in Coetzee's view.

"The SA Reserve Bank has indicated that there will be no repo cuts in the short term, and potentially two increases of only 25 basis points in the third quarter of next year. There is still ample opportunity to make the most of the favourable lending rate.

Steve Brookes, CEO of Balwin Properties, says in addition to the increased work from home trend, integrated communities where residents can work, live, and play in a single node or estate is becoming increasingly popular.

"Homebuyers are increasingly more discerning, expecting green areas with dog parks, and running or bicycle tracks and facilities that cater to social interaction such as gyms, swimming pools, and restaurants within walking distance from their homes," says Brookes.

* Compiled by Carin Smith

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