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First-time buyers surge | Market conditions sees shift in cash buyer behaviour

Posted on November 2 2020

This article first appeared in Property24 on 20/10/2020 – First-time buyers surge | Market conditions sees shift in cash buyer behaviour. View the original article.

It’s definitely not doom and gloom as prospective first-time buyers take a shine to property. Here’s what the experts have to say.

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When lockdown was imposed, resulting in the closure of the Deeds Offices and the suspension of property transactions, many expected that the bottom would fall out of the residential property market. But, the property market has proved to be robust, and not only has activity resumed – in some cases stronger than before the pandemic – but annual house price growth rebounded to 2.1% year-on-year in July.

‘Notable move from renting to buying’

While devastating for many industries, the pandemic has actually been an unexpected boon for the property market as the Reserve Bank dropped the repo rate by 300 bps since the start of the year to support the weakening economy. With the lowest lending rates in 50 years, more prospective buyers have the opportunity to apply for a bond.

The Absa Homeowner Sentiment Index has found that, whereas in 2019, people bought property because it was considered a good investment, in 2020 affordability is the deciding factor.

“There is a belief that property has the potential to help them weather the current social and economic uncertainty,” notes Absa.

Similarly, Standard Bank also noted affordability as a major driving factor, as the economic pressures and impact of the lockdown works through. Steven Barker, Head of Lending Products at Standard Bank SA says the bank has seen a marked increase in home loan applications, with approval rates up 16%. 

“As of September YTD application volumes were up 23% year on year. Approval rates for July 2020 continued to increase from 54% to 56% – with 55% of that making up first-time buyers.” 

‘Saving cash for other investments’ 

“It stands to reason, considering that with five interest rate cuts this year, and the prime lending rate holding steady at 7%, there has never been a better time for potential buyers to consider applying for a bond,” says Carl Coetzee, CEO of BetterBond.

The favourable lending environment has certainly boosted buyer confidence, especially among first-home buyers who previously may not have qualified for a bond. According to the Absa Homeowner Sentiment Index, overall confidence in the property market is up 1% from Q1 to 75%, with the strongest positivity being among those who have never before owned property.

“We have seen this renewed confidence in our bond application volumes, which are up by a considerable 53% from last year. Of these applications, 70% are from first-home buyers, which underlines the impact the lower interest rate is having on the market,” says Coetzee.

Going hand-in-hand with the renewed activity in the housing market has been the notable move from renting to buying in the past few months. “We believe that the radical shift in housing affordability has crossed an important threshold. And, that many would-be cash buyers will rather consider a home loan, and use the cash for other investments,” says Coetzee.

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According to Absa’s Index, support for buying rather than renting is up 8% from the first quarter of the year, with 38% of respondents saying they would rather buy because property is now more accessible, and 26% viewing property as a solid investment.

“South Africans have clearly done the maths – those who are able to invest in property are seeing the benefits of the current interest rates; be it to buy a more expensive property than they would have been able to afford a few months ago, or to apply for a bond as a first-home buyer,” says Coetzee.

In September, the average home purchase price according to BetterBond’s applications was up almost 3%, with property prices for first-home buyers up by almost 4%. Bond approval amounts also increased by close to 7% for buyers across the board, adds Coetzee. Overall, the volume of bond applications and the increase in the purchase price of homes bode well for a sustained market recovery, notes Coetzee.

Kagiso Mahlangu, Director: Real Estate & Conveyancing at law firm CMS RM Partners, agrees that there are signs of an upturn in the market.

‘Two-year forecast for single digit interest rate’ 

“Property is one of those industries that is quite resilient. There is pick-up; it’s just a matter of ensuring affordability. We are seeing the sector pick up and it’s encouraging and exciting.” Another positive is that the South African Reserve Bank forecast is for local interest rates to remain in single digits for the next two years, in line with global economic trends. 

READ | SARB keeps repo-rate unchanged. Has the rate cuts spree come to an end?

“If these outlooks hold, South Africans will continue to be able to afford more home than ever before, which will drive the demand for property as buyers realise their dream home may be well within reach. We should see a sustained and steady growth in property sales for the immediate future,” say Coetzee.