The South African property market is recovering, but not in the way you expected

The South African Reserve Bank (SARB) monetary policy committee raised the repo rate by 75 basis points, making it more expensive to finance a home with a prime rate of 9%.

Property experts are quick to point out that interest rates remain below pre-Covid levels.

“It is pertinent to keep in mind that although interest rates may rise as the bank normalizes its monetary policy after the removal of the remaining restrictive regulations associated with the pandemic, they still remain below pre-existing levels. Covid (by 10%) and therefore are still attractive to homebuyers,” said Dr Andrew Golding, managing director of Pam Golding Property Group.

“Most importantly, banks are maintaining their appetite for providing mortgages to homebuyers, which provides a solid foundation for the local real estate market, even as we enter an era of gradually rising interest rates. and mounting pressure on household finances,” he said after the rate announcement late last month.

Banks’ appetite for extending mortgages is reflected in the most recent Ooba data, which showed that mortgages as a percentage of purchase price have reached a level of 93% in recent months (moving average over six months), which is the highest level for more than a decade.

As a result, activity in the South African housing market remains buoyant – properties sold in the first half of 2022 almost matching the number of transactions recorded in the first half of 2020 and remaining comfortably higher than in the first. half of 2019 before the pandemic.

“What we are seeing is that residential real estate is increasingly viewed by South Africans of all backgrounds and especially by the younger generation, as a solid investment class. Encouragingly, demand for investment (or buy-to-let) properties continues to grow,” Golding said.

He said that while there may be headwinds in the housing market – such as rising inflation, rising interest rates and a sluggish local and global economy – continued positive support for the market is the appetite of financial institutions to extend credit.

“Not only do they price home loans competitively, but they also require lower deposits as a percentage of sale price than we’ve seen in over a decade. And as always, there are still areas of high demand in various regions, and the trend of migration continues to coastal and more rural areas for various reasons, as well as to sought-after metros and malls.

The trend towards out-migration is evidenced by the continued acceleration in coastal property prices, with the price premium over non-coastal property widening to +3.1%, the highest since mid -2005.

Value trumps volume

Data from Lightstone showed the market is recovering, but not in the way many might have expected, with value trumping volume when it comes to the resurgence in the property market.

Hayley Ivins-Downes, head of digital at the data and analytics firm, said total transfers for the first and second quarters in 2022 were 129,642, down slightly from 2021, when 130 102 transfers had taken place in the first and second quarters.

However, she said the total purchase price had risen to R156 billion in 2022, well above the R69 billion recorded in 2020 and the R112 billion in 2019.

The data suggests the property market was continuing its recovery from Covid-19 and showing signs of growth – despite local and global economic and political challenges, Lightstone said.

Total purchase price

While the total number of transfers had fallen slightly, there had been a more marked drop in the volume of bail transfers, down 10.8% in the first quarter of 2022 and 5.9% in the second quarter. Ivins-Downes said bonded transfers in 2022 fell to 68,731, 53% of all transfers, from 74,986, 57% of all transfers in 2021.

Total transfer volume

Total volume of bail transfers

The total purchase price of all properties increased from R153 billion in the first and second quarters of 2021 to R156 billion in 2022. The total purchase price of bonded properties increased from R104 billion in 2021 to R101 billion in 2022, Lightstone said.

Total purchase price

Total Purchase Price of Bail Transfers

The graphs below demonstrated that while Gauteng accounted for 37% of all transactions in the second quarter of 2022, compared to 24% in the Western Cape, sales values ​​were the same in both provinces at R31 billion (36 %) of total sales. This suggests that sales in the Western Cape were reaching higher values, the data scientist said.

In terms of provincial mix, Ivins-Downes said most transactions took place in Gauteng, with the Western Cape second and KwaZulu-Natal third.

Read: How much more you’ll pay on your bond after South Africa’s latest sharp interest rate hike