Hopeful signs of a shift in the tide
From left to right: Tony Clarke (MD Rawson), Adrian Goslett (regional director and CEO RE/MAX Southern Africa) and Rudi Botha (CEO BetterBond).
“Prime is currently at the lowest it’s been since 2015”
After a tumultuous third quarter a continued decline in property sales comes as no surprise yet the term also yielded some interesting trends in the housing market such as a high approval rate for home loans says property experts.
The third quarter of 2018 produced some interesting trends in the housing market. Following a term in which a technical recession was announced coupled with sharp fuel increases it comes as no surprise that property sales figures declined overall in the third quarter.
However compared to last year, the banks appear more willing to approve home loans. Although tapering down from the boom in home loan approvals seen at the beginning of the year, the Rawson Property Group reports the national average approval rates are still above 50% (compared to an average 47% in 2017). “The general market slow-down and decreasing consumer confidence seem to have put banks on the back-foot to some degree, and mortgage applicants are reaping the benefits in several ways,” says Tony Clarke, managing director of the Rawson Property Group.
Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa, observes that house prices continue to grow slowly despite the current economic outlook, and that more sales are taking place in the middle-income price bands.
Increasing competition between banks
According to Leonard Kondowe, national administrative hub manager for Rawson Finance, one of the more predictable effects of the market slow-down is a decrease in total bond applications received by banks. This, he says, appears to have triggered an interesting imbalance in the mortgage supply:demand ratio, forcing banks to become much more competitive to secure their share of qualified mortgage clients.
“As a result, bond applications are being treated with more lenience,” says Kondowe, “particularly when it comes to small business owners and entrepreneurs. Affordability is, of course, still key, but as long as you can prove stable income, banks are willing to look a little bit outside the box.”
While the higher bond approval ratings tend to favour the higher income groups. Kondowe says the banks are also increasing their efforts to support affordable housing applicants as well.
Gerrit Disberg, director of Engel & Volkers financial services, notes that the loan approval rate is the highest it has been in 10 years. “This is beneficial to buyers as it means there is more opportunity to negotiating a home loan structure and lending rate that works in the client’s favour,” says Disberg.
Rudi Botha, CEO of BetterBond, sasys that they hope to see this lenient trend of the banks towards home loans continue as the agreement concluded by government, business, labour and community after the jobs summit takes effect.
He explains: “Obtaining a home loan is the key to home ownership for most people and a steady job or profitable self-employment is prerequisite for those applying for home loans, so it was exciting to learn that the job summit participants are committed to creating more than 250 000 jobs a year for at least the next 10 years. If even just 10% of those jobs result in home purchases, the potential for the expansion of SA’s R4 trillion residential real estate market is enormous.”
A shifting market
Goslett notes that while bonds for R400 000 and below still account for the biggest segment of the market (31.3%), slight increases in the higher bond transfers between R400 000 up to R1.5 million could indicate a shift away from the reach of entry-level buyers and in favour of the middle-income buyer.
Goslett cites that according to BetterBond statistics there has been a rise in the percentage of home loans granted to amounts greater than R1m in the past year (at 41% this year up from 38% two years ago). The bond originator also reports a significant decline in the bonds granted for below R500 000 – the price category traditionally favoured by lower-income first-time buyers.
“Given this shift, it seems that the economic conditions during the third quarter have made it increasingly difficult for first-time buyers to enter the market, while the middle-income price bracket continues to show growth. This possibly can be attributed to downsizing from within the high-end market. But – since minor growth was still reflected in these segments, and a drop was only reflected in the category of bonds for below R400,000 – an additional explanation is that some were able to move up on the property ladder by selling their entry-level homes for a profit,” Goslett concludes.
Stable financial rating is holding … hopefully
The influential ratings agency Moody’s decided to wait with their October rating announcement until after the new finance minister Tito Mboweni delivered the mini-budget speech on Wednesday 24 October.
“Moody’s is the one agency that currently stands between SA consumers and the hugely negative effects that a downgrade of the country’s investment status to ‘junk’ would have, which is why there is always so much anxiety when a review of its assessment is due, as it was on 12 October,” says Botha.
Botha also notes that the rand has performed better since the appointment of Mboweni and he reckons the economy is showing signs of improvement. “Statistics reveal, for example, that production in the manufacturing sector was up in July and August compared to the 2nd quarter and that car sales have increased steadily since June,” he says.
Stable rates and 100% loans
Debate over whether or not the South African Reserve Bank (SARB) should increase interest rates to curb inflation continues to churn, but for now, the prime lending rate remains at a modest 10%. Should this status quo remain the same after the next SARB Monetary Policy Committee meeting in November, Kondowe says mortgage holders and new applicants should still be in a relatively strong position.
“Prime is currently at the lowest it’s been since 2015,” he says. “Even a small increase at this point shouldn’t put too much pressure on bond-holders. Obviously, we’re all hoping for continued stability into 2019, but with the right help during negotiations, capable mortgage applicants should still be able to secure favourable loans for up to 100% of their property’s value.”
New Finance Minister Tito Mboweni pulled no punches with his Mid-Term Budget Policy Statement – there’s a lot of work that must be done to restore investors’ faith in SA. How does it impact the residential property market? Email your comments to email@example.com.