Tough economy favours buyers’ market

Tough economy favours buyers’ market

In these tough economic times, buyers are looking for affordability and value for money and, thankfully, banks are showing greater leniency towards property finance.

The year 2018 is almost at the midway mark. What a year it has been so far! The ‘Ramaphoria’ of February has since had to contend with continued uncertainty about the eventual outcome of the proposed expropriation of land without compensation (exacerbated by acts of illegal land occupation sometimes accompanied by violence) and tougher economic times due to a VAT increase, two hefty fuel increases (and another one expected in June) and rising food prices. But it is not all doom and gloom on the horizon.

Banks have since last year become more lenient with approving home financing, proved by an increase in the national bond approval rate, and, although the property market is still slow, there is growing interest in the lower to middle income property range.

“For the last year or so, there’s been a definite trend towards a more relaxed approach to property finance from the banks,” says Mark Hendricks, regional manager for Rawson Finance. “They’ve been offering more favourable rates, are open to 100% bonds again, and have been considering applications from a far wider pool of candidates than ever before.”

National bond approval statistics support Hendricks’ observations, showing a notable decrease in the number of applications being declined in the last year.

“In 2017, 47% of bonds were approved on intake, across the industry,” says Hendricks. “As of March 2018, those approval statistics are sitting at 60% – an extremely significant rise. At Rawson Finance, we often see even higher approval rates as well. In fact, our Western, Southern and Eastern Cape region had a 73% approval rate this March. Some of that success is due to the support and integrity we enjoy as part of the Rawson Property Group, but the national averages clearly show that banks are coming to the party as well.”

Higher approval rates aren’t the only positive changes taking place. Banks’ increasing willingness to offer favourable interest rates was recently compounded by a drop in the prime lending rate.

“The prime lending rate dropped from 10.25% to 10% at the end of March,” says Hendricks, “which not only lowers the repayments on existing prime-linked mortgages, it also makes new loans more affordable. Add to this the relatively slow national housing market where average price growth has been reported as decelerating, and opportunities for buyers are starting to look pretty good.”

“It is a good time to buy property,” says Samuel Seeff, chairman of the Seeff Property Group. “Over 90% of all sellers still need to drop their price to conclude a sale while house prices remain under pressure.”

According to FNB, the national house price growth in the first quarter declined to 2.6%, down from 5% at the end of last year. The Western Cape was hit especially hard with price growth slowing to just 1.5%, touted as the worst performance for the province since 2010. The national average price of homes transacted in March was just over R1 million.

The best price growth is seen in the house price range up to R1.2m, at 5% marginally up from the end of last year. Luxury area prices (R2m-R3m) have slowed slightly to 4.9% (from 5.2%) while super luxury areas such as the Atlantic Seaboard is down to 2.6% average growth.

Seeff says while Cape Town may seem pricier for first time buyers compared to Johannesburg/Pretoria and other areas, there are still many neighbourhoods that offer accessible pricing in the R500 000-R1.5m range, yet with the same access to excellent amenities and good schools.

Mark Coetzee, COO of property portal Private Property, says their data shows an increase in demand in the R1m to R2m range, with a 10% increase in demand in the last three months. He says there is a corresponding 10% drop in demand in the over R2m range, which suggests that affordability is an issue and buyers are looking for greater value.

Based on activity on the property portal’s website, they compiled a top 10 list of suburbs (see list below) in the R1m-R2.5m range in the three major metro’s where middle income earners can find good value for money. The reasons for their popularity range from security, amenities in the area, proximity to business hubs, good schools in the area and the selection of properties available.

Joburg Metro CT Metro Durban Metro
Moreleta Park Parklands Morningside
Faerie Glen Goodwood Musgrave
Equestria Tableview Bluff
Weltevreden Park Athlone Westville
Bryanston Plumstead Amanzimtoti
North Riding Grassy Park Waterfall
Randpark Ridge Kuilsriver Malvern
Garsfontein Protea Heights Glenwood
Glen Marais Cape Town City Centre Kloof
Sunninghill Brackenfell Central Durban North

The property market is still slow. Seeff explains that 12 weeks to sell characterises a healthy market, but the current average still sits at just over 14 weeks. Gauteng areas such as Johannesburg and Ekurhuleni are doing well at around 12-15 weeks and 11 weeks for Pretoria. Cape Town is at around 15 weeks, but longer for upper end areas, says Seeff. Durban (Ethekwini) and Port Elizabeth (Nelson Mandela Bay) still lags notably at 21-22 weeks.

Although secondary home buying is expected to improve, it is still at around 13% (from 20% in the pre-2007/8 boom period). Foreign buying, also mooted for an uptick, still sits at just over 4% of all residential buying with even buying from the African continent down due to weaker economic conditions on the continent. Expat buying remains low at 1.5% of all buying.

“We remain upbeat about the year ahead and the sentiment and economic improvements filtering through and are encouraged by the steps taken by President Cyril Ramaphosa such as the new foreign investment drive which economists predict could be a major boost for economic growth. The property market is a factor of the economy and we usually see a lag in improvement. That said, if you are looking to buy or invest in property, you would not want to leave it too late, because once the market takes off so too will the prices,” concludes Seeff.

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