Money and Markets

2020 was a bumper year for home buyers and sellers in SA - here's what to expect from 2021

Business Insider SA
Cardboard boxes and potted plants in empty room.
  • The SA residential property market has had a bumper year, with (probably) the largest number of mortgage approvals in over a decade.
  • Defying expectations, house prices rose in 2020 and more buyers received their asking price.
  • But FNB expects house prices to fall by 6% this year as job losses and an increase in emigration start to bite.
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When South Africa first entered a hard lockdown in March last year, experts predicted a massive slump in home-buying, with expectations that prices would fall by between 5% and almost 15% for the year.

Instead, house prices increased by 2% and 2020 probably registered the highest volume of mortgage approvals in over a decade, says Siphamandla Mkhwanazi, FNB senior economist.

While banks remained cautious (the percentage of approved applications was lower in 2020 compared to 2019), many more people applied for home loans – resulting in a large number of approvals. According to data from the Reserve Bank, more than 250,000 mortgages were granted by September last year:

Source: SA Reserve Bank

This is mostly thanks to ultra-low interest rates, with the prime rate currently at 7% from 10.25% two years ago. The prime rate has more than halved since 2008, when it hit 15.5%.

On a home loan of R1 million, monthly instalments are almost R2,000 cheaper than two years ago.

READ | How to buy a 'distressed' property in SA – while avoiding the many, many pitfalls

“More people can now afford to make aspirational purchases and, for the first time in decades, it is cheaper to buy a home than it is to rent one of the same value,” says Carl Coetzee, CEO of BetterBond, one of the largest bond originators in South Africa. 

 “Instead of the doom and gloom many had predicted for the housing market, there’s been a resurgence in buyer activity.” Coetzee says BetterBond, which has been doing business for more than two decades, recorded its best December in history, with a 53% year-on-year growth in bond applications at a time when home buying activity is traditionally slower.

“When lockdown restrictions first eased in June last year, we saw a massive spike in bond applications. Initially, it was thought that this was just pent-up demand. But the sustained bond activity indicated that the lower interest rate was undoubtedly driving the robust recovery.” Some 70% of all applications were from first-time home buyers, BetterBond says.

Mkhwanazi says lower transfer duties also played a role in stimulating demand, as did changing housing needs due to the pandemic. As millions of people work from home, some households found that they needed more space and started looking for new properties.

The strong demand meant that, by the fourth quarter, 28% of properties were sold for the seller’s asking price, from 20% at the start of the year – and only 2% as recently as last year. On average, homes were sold for only 10% less than the asking price - from 13% in the first quarter. And in the last quarter of 2020, homes stayed on the market for only 9 weeks and 4 days, from 10 weeks and 6 days in the third quarter.

Larger houses were more in demand than smaller units. The prices of freehold properties (+3.5% over the past year), which have become more popular as more people work from home and need more space, continued to outperform sectional title units (+1.3%), FNB says.

The average annual house price growth reached 2.1% in 2020, with much of the price gains in the cheaper end of the market.

Outlook for 2021

While the Reserve Bank kept interest rates unchanged last week, the outlook for 2021 is not rosy. FNB expects house prices to fall by around 6% this year.

More than a million South Africans lost their jobs and the pandemic has put strain on households, with “downscaling due to financial pressure” fast becoming the top prominent reason for selling homes in SA, FNB found.

Traditionally, “downscaling due to lifestyle changes” was South Africa’s biggest reason for selling a home, but in the last six months, this was tied with financial pressure (at 22% each) as the reason for selling.

“Sales in execution are on the rise. Admittedly, these have not been as bad as in 2008. Among other factors, this is due to support from lenders (payment holidays) and the aggressive interest rate cuts that ameliorated financial pressures. These measures are coming to an end, and the effect is waning,” says Mkhwanazi.

READ | We watched 33 distressed properties auctioned in Gauteng – and saw an average 42% discount

Sales due to emigration fell from 18% towards the end of 2019, to 11% at the end of last year. But FNB says these sales have started rising in the more expensive price brackets (particularly the R2.6 million to R3.6 million band).

The bank expects that emigration sales should start to increase when travel restrictions are relaxed, which should put pressure on more expensive homes.

FNB also expects more landlords to sell their properties as they struggle to find tenants, adding to supply in the market.

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