More than 70 percent of the home loans currently being granted are for amounts under R1 million, according to the latest statistics from BetterBond Home Loans, which accounts for more than 25 percent of all residential mortgage bonds being registered in the Deeds Office.
A six bedroom home in Bishopscourt, Cape Town is selling for R16.75 million through Sotheby’s International Realty Claremont. Click here to view.
Another 26 percent of the loans being granted are in the R1 million to R2.5 million range, leaving only about 3 percent in the over R2.5 million category, says chief executive officer Shaun Rademeyer.
Buyers and prices
Rademeyer points out that despite all the attention recently given to the increasing sales of multimillion-rand trophy homes, the real backbone of the housing market at the moment is the lower end, where every month sees many thousands of people making offers to purchase and applying for home loans.
“This is reflected in our figures in the fact that 48 percent of applications are still coming from first-time buyers, whose average home purchase price is R630 000, and who are paying an average of R67 000 as a deposit.”
However, he says, there have been some quite noticeable shifts in lending patterns over the past 12 months, in line with a gradual upward shift in property prices, and with an increase in purchasing in the middle-income sector, which has more repeat buyers with equity in existing homes that they can leverage as deposits.
For example, the proportion of bonds granted in the R250 000 to R500 000 price range has dropped by more than 16 percent in the past 12 months, while the proportion being granted in the R1.5 million to R2 million range has risen 33 percent.
Meanwhile, Rademeyer says, it is interesting to note that despite the banks’ increased appetite for mortgage lending in the past 12 months, the percentage of loans being granted for 100 percent of the purchase price has declined, with the result that 61 percent of all borrowers are now required to pay a deposit.
“Our figures show that the average percentage of purchase price required as a deposit has been a not-insignificant 18.5 percent over the past 12 months – although it does vary greatly depending on the home price category and, of course, on the individual borrower’s credit profile.”
He says this trend is tilting things further in favour of middle-sector buyers and they expect it to gain momentum as interest rates and household expenses continue to rise over the next 12 months.
First-time buyers
Adrian Goslett, chief executive officer of RE/MAX of Southern Africa explains that first-time buyers are often considered to be one of the pillars in a strong home-buying market.
Adrian Goslett, chief executive officer of RE/MAX of Southern Africa explains that first-time buyers are often considered to be one of the pillars in a strong home-buying market.
However, current market dynamics could be prolonging first-time buyers from taking the leap towards home ownership.
External factors have played an intricate role in the market over the last six months with consumers having experienced an interest rate hike, fuel prices reaching record levels, along with food and utility prices going up.
“The higher cost of living makes buying a property seem a lot harder in the current market, but despite all of this, surveys suggest that many first-time buyers are still holding onto their dreams of owning a home, and are eager to get their foot into the property market as soon as possible.”
Although the factors mentioned above may delay first-time buyers from purchasing a property, it has not deterred them from wanting to own property as millions of consumers that are currently renting say that they aspire to homeownership, he says.
Goslett notes that Betterbond data shows that almost half of the home loan applications they have received over the past year have been from first-time buyers, with the average age of the applicants being around 34 years old.
He points out that data such as this proves that many consumers want to purchase a home, but they are doing so a lot later than some of the past generations and are having to work harder to do so.
“People believe in homeownership and see it as one of life’s key milestones, however, factors such as the expected further interest rate hikes, rising home prices, high personal debt levels and deposit requirements by financial institutions, have kept some buyers out of the market for longer than expected.”
He says another factor is that property owners are remaining in their homes for longer, which has led to inventory shortages and possibly less entry-level properties available on the market.
During the recession many investors also seized the opportunity to grow their rental portfolios by purchasing many of the entry-level properties, says Goslett.
“Stronger demand for property has also been attributed to the property stock running low, with increased numbers of transactions in recent months depleting stock levels.”
This demand for property and the tight inventory situation has led to home values increasing and first-time buyers having to dig deeper into their pockets.
Goslett says that while the positive property price growth over the last two years, with further growth expected this year, has been welcomed by existing homeowners who are possibly now seeing good returns on their investment, it has pushed some properties out of the affordable price range for certain buyers.
According to Betterbond’s statistics, the average home purchase price paid by first-time buyers has increased by 7.9 percent in the last year, while the average overall purchase price has grown by 11.7 percent. While the average price of property has increased, deposit amounts required by banks have decreased, which somewhat mitigates the effect of the increases for potential buyers.
Priced at R650 000, this 90sqm two bedroom flat in Glenwood, Durban is on the second floor in a well-run block and is selling through Harcourts Musgrave. Click here to view.
According to Goslett, for the housing market to continue on its upward trend, more affordable homes will need to enter the market to compete with the growing demand, particularly among first-time buyers.
“Homeownership aspirations are very much alive and well, but first-time buyers will have to successfully contend with the current financial environment to make the dream of owning a home a reality.”
While the market was once very much in the buyer’s favour, external factors have put both buyers and sellers on a more even footing.
Moving forward, potential first-time buyers should reduce personal debt whenever possible and save for a deposit and the other costs associated with a property transaction, he points out.
Luxury property market
Lew Geffen, chairman of Sotheby’s International Realty in SA, says the top end of the market especially is strong countrywide at the moment and “on fire” in Cape Town and Johannesburg.
Sales volumes are up at least 5 percent across the board since the beginning of the year and he notes that they have been experiencing record months in many areas.
In March alone, for example, the agency sold R120 million worth of property on the Atlantic Seaboard, including a V&A Waterfront property sold for R38 million.
Other properties sold in this area in the past three months include a Clifton home sold for R49 million and a Camps Bay property sold for R28 million, while in Johannesburg they sold more than R150 million worth of ‘big ticket’ properties in the past three months, including two Sandhurst cluster homes sold for R28.5 million each, a Sandhurst house sold for R21 million, a rare vacant stand in Sandhurst sold for R13 million and a Hyde Park property sold for R11.25 million.
He says luxury property buyers are apparently not averse to paying the higher prices that are the result of a growing shortage of properties for sale in the most sought-after areas – provided they see value-for-money.
Absa statistics show that the average price of luxury homes grew by just under 5 percent in 2013 and that of large homes by 9.5 percent, with expected further price growth in the first few months of 2014.
“Our average sale price achieved has risen 39 percent from R2.3 million in 2012 to R3.2 million currently and we are certainly experiencing far less buyer resistance than there was then - although it must be said that buyers in this sector are particularly well informed about market trends in the areas they are targeting, and averse to even viewing properties they regard as being overpriced.”
A two bedroom apartment in North Riding is selling for R660 000 through RE/MAX One Hundred. Click here to view.
Geffen says the major reason for the high level of activity currently is a huge influx into the market of buyers employed by banks and other financial institutions.
“We are finding that up to 40 percent of sales in some areas are to these ‘institutional’ buyers, most of whom have pre-approved, 100 percent bonds, so we can only assume that they have been advised by their employers that now is a good time to buy and/or upgrade, before interest rates – and prices – rise any further.”
He says, high net worth buyers are generally good at reading markets, and have obviously picked up on the fact that time is running out if they still wish to upgrade from existing homes to more luxurious properties at a “discount”.
“Such buyers know very well that those who own luxury homes generally have no urgency to sell, and in fact tend to resist selling in a rising market.”
These owners will often actually withdraw their properties from the market and thereby create a shortage of supply that immediately drives prices even higher, which is exactly the scenario we now see developing, he says.
Emerging buyers
According to Richard Gray, chief executive officer of Harcourts Real Estate, the Millennials – people born between about 1982 and 2000 – are the next big demographic of home buyers emerging into the property market now.
He says home sellers as well as their agents need to understand what their real estate preferences are, as these are very different from those of previous generations.
For example, Gray says most Millennials are going in the opposite direction to their parents and grandparents by leaving the suburbs and moving to the inner city and other heavily urbanised areas as they get older.
“They have a great preference for diverse and lively communities and above all want to live in a ‘walkable’ area, where everything they need, from toothpaste and milk to public transport and the gym, and preferably their office and their children’s schools, are no more than a couple of minutes’ safe walk from home.”
Secondly, he says, this generation is not really impressed by luxury but loves “smart home” technologies and the efficient use of space.
“Millennial homeowners are much more likely to brag about a home automation system than a newly-renovated kitchen, for example, and many of them work from home so would rather have a home office than a separate dining room.”
Thirdly, he says it is becoming clear that they favour much smaller and more individual homes than their parents’ generation, although they do like them to have ample storage space and outdoor space that extends their living areas.
Although it may seem counter-intuitive, millennials are very keen on DIY and fixing things, so they like renovating – or recycling - older homes and altering them to suit their specific needs, he notes.
And it is this latter characteristic, Gray says, that is most encouraging for home sellers in the suburbs who worry that they will not be able to attract the new generation of buyers.
In fact, says Gray, there is great scope for attracting millennials to those suburbs where there are lots of older, individual homes ripe for recycling – provided those suburbs themselves start developing some of the best ‘urban’ characteristics, such as diversity of both population and building design, a mix of housing types, good public transport, environmental consciousness and safe public spaces.
He says this positive millennial influence is in fact already evident in many of South Africa’s central suburbs, where droves of young buyers are now “moving in and cleaning up”, and is also a major reason for the success of those estates that have integrated schools, shops, office and a variety of housing types into their development plans, as well as major new urban projects such as Melrose Arch, Century City and Umhlanga New Town.
He adds that although millenials have generally been slower to enter the property market than previous generations, thanks to higher education costs, the global financial crisis and higher unemployment worldwide, they are set to have an increasingly beneficial effect, not only on property sales, but on the built environment.
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