Positives are stacking up for SA property

Rudi Botha, CEO of leading mortgage originator Betterbond, notes: “SA currently has much better fundamentals driving the property market than most other countries, including a still-growing black middle class and thus an increasing number of people with good jobs and an appetite for home ownership.

“These aspirations have been fuelled this year by above-inflation wage increases to many government employees and union members, and the results are evident in our latest statistics, which reveal that the number of home purchases by black buyers, as a percentage of the total number of purchases, has jumped from 42% to 52% in the past 12 months.”

The increased affordability of residential property, he says, is another major positive factor for the SA market. “Of course interest rates, currently holding at a 30-year low, have a large part to play here, because monthly mortgage commitments are reduced. Indeed, the minimum instalment on an average home is currently some 33,5% lower than in 2008, just before the global financial crisis.   

“In addition, low interest rates make it easier for buyers to qualify for mortgage loans, as does the fact that many households have worked hard to reduce their debt burden over the past few years and that the average debt to income ratio has now dropped below 76%, from a high of around 83%.

“This is reflected in the recent calculation by FNB that the percentage of homes being sold in order to relieve financial pressure on the owners has dropped from 25% earlier in the year to 19%.”

And on top of that, says Botha, home prices are currently much lower, in relation to average incomes, than they were three years ago, and this is really starting to fuel demand now, especially at the lower end of the market. “In fact, we believe that, were it not for the current lending criteria and especially the requirement for substantial deposits, there would be many more home sales taking place than is now the case.

“Our figures reveal that the number of offers to purchase being negotiated by estate agents has climbed right back up since 2009 and is currently only 33% down on the number they were handling at the height of the property boom.

The monthly value of deals actually being registered in the Deeds Office, however, is still only about one-third of the value that was being achieved during the boom – largely due to buyers’ inability to secure finance to go through with their purchases.”

However, there is good news in this situation in the form of steadily increasing demand for rental properties, which should soon bring greater numbers of investors back into the market. “Rental yields are starting to increase in many areas and this should really spur greater market participation once more from buy-to-let investors, who currently only account for about 8% of home purchases.”

Meanwhile, Botha says, SA consumers should be delighted by this week’s decision on rates, especially as several of the other BRICS group of countries have raised rates recently in an effort to contain inflation. Other countries that have lowered interest rates, or kept them low, have also drastically lowered their growth forecasts for the next year (see table).

“SA, by contrast, is set for reasonable growth of 3,1% this year, with the the manufacturing and retail sales figures looking particularly encouraging at this stage - and that is more good news for the property market as it implies job creation and more housing demand.”

CountryRepo RateMoved FromDate of ChangeCPI Inflation pa
US0,25%1%Dec 20083,9%
UK0,5%1%Mar 20095,2%
Australia4,5% (down)4,75%Nov 20113,5%
Brazil11,5% (down)12%Oct 20117,3%
Russia8,25% (up)8%Apr 20117,2%
India8,5% (up)8,25%Oct 201110,1%
China6,56% (up)6,31%Jul 20115,5%
South Africa5,5%6%Nov 20105,7%

Source: Global Rates

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