South Africa’s property market, like its economy, is currently stagnant. House prices only grew at 3.6% in 2019 according to FNB’s Q4 Property Barometer. In 2020, the bank predicts just 3.7% average annual house price growth; still below its inflation forecast of 4.3% in the same period. And while strong house prices are more beneficial to the economy and existing homeowners, there is an upside for prospective buyers in the current climate.
It is currently easier than normal to secure a 100% bond from a bank, so the barrier of paying a deposit can be removed. In addition, there are far more bargains to be had in a market where properties are slower to change hands.
Kevin Penwarden, CEO at SA Home Loans (SAHL) says that house prices have been flat for years, meaning the value of bonds applied for has also been stagnant. “In the more traditional middle-income market, the average value is around R850 000 – which is barely a 5% increase over the past five years. In our emerging market of more affordable homes, we have seen a better growth, but still only around 10%, taking the average bond to a little over R400 000.
In addition, the average age of borrowers has not changed over the past five years. This unfortunately emphasises our economic problems, where it remains difficult for first time buyers and younger people to enter the property market, as they do not have the savings, the cash flows and the credit records typically needed. Even in more affordable housing, the costs of new buildings limit the growth in first time buyers.”
According to FNB’s House Price Index (HPI), the bank expects broader economic developments, especially employment growth, to continue dictating the longer-term trends. “Positively, demand for mortgages has shown mild signs of improvement across all price segments. At the same time, some sellers withdrew their properties on the market for resale amid unfavourable selling conditions. This has somewhat curtailed the pace of supply,” says FNB property economist Siphamandla Mkhwanazi.
In response to this lack of growth, Crispin Inglis, CEO of consumer-first digital estate agency PropertyFox, says the big banks are now far more open to granting 100% bonds to encourage buying and selling in the current environment.
100% bonds: the good and the not so good
Penwarden says competitiveness between the major lenders has led to a strong, consistent trend towards 100% bonds. “This means buyers who qualify can get a loan without paying a deposit. And for those who can afford a deposit, the amount of deposit required for a loan has decreased steadily and markedly.”
He said that while 100% bonds can be beneficial in the short term, they are not without their long-term risks. “For SAHL, the need to lend responsibly remains our guiding light. In an economy where consumers are very stretched and increasingly vulnerable, we also pay close attention to whether our applicants can afford to pay back the loans over the long term. Of course, remaining competitive is important, but not at the cost of our clients being in a position to manage their loan.”
Inglis says that it is a good time to buy – but to do so cautiously and as affordably as possible. We are currently deep in a buyers’ market in South Africa. This means there are more houses for sale than there are suitable buyers looking for a home. “In this type of market, buyers have far more wiggle room when they negotiate. So this could be the moment to get your foot in a suburb near your kid’s dream school or buy a home with the extra features you’ve always wanted. It is also a very good time to buy in the price range for a buy-to-let investment arrangement.
Inglis adds that if a loan has no wiggle room, it can be very hard for the loaner to pay it back if, for example, interest rates are hiked or their financial circumstances change. “Unfortunately, 100% bonds do tend to come with higher interest rates and, with interest rate hikes at the discretion of the Reserve Bank, it is important that consumers enter into a home purchasing arrangement with their eyes wide open.”
For those selling before they buy, it is likely they’ll get less for their existing property than they’d like, which may mean less to invest in the next purchase. Bearing in mind the very high costs of transfer duties, it is worth ensuring that costs are kept as low as possible. For instance, by working with a low commission estate agent or a well-priced mortgage company.”
He concludes that a good route to go would be to keep your home purchase affordable. “Buying in the most in-demand bracket, the under R2-million range, is a good idea because you are more likely to find a buyer or to find prices in the area accelerate if the market starts to turn.”