Lower interest rates give renters the edge to buy property

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Due to the economic impact of the pandemic and related lockdown, many tenants are now in rent arrears.
Due to the economic impact of the pandemic and related lockdown, many tenants are now in rent arrears.
  • The impact of the Covid-19 pandemic has been more visible in the rental market than the home-buying market, a survey shows.
  • Lower interest rates have encouraged renters in the middle market to start buying property, resulting in increasing flat vacancies and mortgage applications reaching multi-year highs.
  • More pressure in labour conditions and job shedding impacting higher-skilled workers could impact the property market in the medium term.

The pandemic has had a visible impact on the rental market, with many renters finally having the edge to start buying property, a survey found.

The FNB House Price Index for the third quarter of the year, was released on Wednesday. It noted that a significant cut in interest rates, lower mortgage rates and transfer duties as well as good pricing has encouraged renters to buy.

The index shows that the annual house price growth for October remained flat at around 2.6%, year on year. Residential property price growth remains below inflation – a trend observed over the past decade.

"Despite the pandemic, industry-wide data shows bourgeoning home buying activity, with the volume of mortgage applications reaching multi-year highs," the report, authored by FNB senior economist Siphamandla Mkhwanazi, read. For the year-to-date, application volumes are approximately 9% above the same period in 2019, the report indicated. Approvals, however, are still lagging behind, with lenders taking a cautious approach given the uncertain economic outlook. But approvals are picking up from the lows of May and June at the height of lockdown restrictions.

"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," said Mkhwanazi.

Job loss risk

Possible job losses in coming quarters, especially among white-collar occupations, would see weaknesses in house price growth into 2021, Mkhwanazi noted.

So far job losses have been more severe among low-paying occupations (those below R750 000) – notably there have been rising property sales due to financial pressures in the lower end of the market. The data, however, shows that the majority still look for cheaper property. "While income squeeze is a valid concern, so far there have been enough buyers in the segment, which, combined with structural supply deficit and lower rates, has helped keep prices afloat … Agents in this segment expected activity to pick up over the next three months presumably as lockdown restrictions are lifted and income squeeze eases," the report read.

The middle-income market (occupations between R750 000 and R2.6 million) has benefited from low interest rates and lower transfer duties. The recovery in this segment is mainly driven by younger, first-time buyers below the age of 35. With more renters buying property there are higher flat vacancies and as a result low rental inflation.

The affluent market (occupations between R2.6 million and R3.6 million) is facing higher financial pressures. Homeowners are withdrawing their properties from the market for sale and opting for home improvements, using savings. "This may be due to the changing living requirements, requiring a more conducive environment for working from home, but also a tough selling environment," Mkhwanazi said.

Income pressures are building up, this segment notably has higher exposure to financial markets in the form of dividends, corporate income and rental income.

FNB noted a second wave of job losses, mainly among higher-skilled workers would impact the property market and subsequently price growth in the medium term.

Compiled by Lameez Omarjee

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