As counterintuitive as it may seem, there has been a resurgence in housing activity in recent months.
The general expectation among industry players was that rapidly rising interest rates and living costs would bring an abrupt end to SA’s two-year housing upswing. This hasn’t happened yet (though the recent steeper-than-expected 75 basis-point rate hike — bringing the prime lending rate to 9%, up from 7% in November — may yet put a brake on homebuyer exuberance).
Latest data from the deeds office, as tracked by real estate group Re/Max points to a hefty 32% year-on-year increase in residential property sales in the second quarter. Nearly 58,000 freehold and sectional title properties were sold countrywide from April to June.
That followed a marked slowdown in the first quarter, when only about 40,000 properties changed hands, representing a 30% year-on-year drop.
Re/Max Southern Africa CEO Adrian Goslett says the first quarter’s slowdown didn’t come as a surprise, given the start of the rate hiking cycle in November. But the market’s rebound in the second quarter is “somewhat inexplicable”, he says.
“The housing market bounced back and is now even stronger than it was last year — and 2021 was already a record-breaking year for our network.”
In five of the first six months of 2022, Re/Max’s sales turnover surpassed the record highs achieved for the same months last year, says Goslett. He believes the still-high activity levels can be ascribed to the continued effect of pandemic-induced changes in how people live and work.
Of course, it’s possible that many would-be buyers only recently pulled the trigger, given fears that further rate hikes would diminish their buying power. Others may have waited to see whether lifestyle shifts would prevail in the wake of Covid — particularly on the remote working front. There’s also the possibility that those who relocated to the coast or countryside during the pandemic have now been forced to return to city head offices.
The recent easing of pandemic-related international travel restrictions and ongoing semigration also seem to have aided housing activity, particularly at the upper end of the market.
On this count, the Garden Route and Cape Town’s swish Atlantic seaboard suburbs of Clifton, Camps Bay, Bantry Bay, Mouille Point and the V&A Waterfront, southern suburbs Constantia and Bishopscourt, and Simon’s Town on the south peninsula are leading the way.
Figures from Lightstone Properties show the number of R10m-plus sales recorded in the Western Cape last year was more than 50% ahead of that achieved before Covid, in 2019 — 624 against 403.
Steven Neufeld, principal of Lew Geffen Sotheby’s International Realty Plettenberg Bay, says the popular Garden Route coastal enclave is heading for another record-breaking sales year, as semigration continues to fuel an already buoyant market.
He expects the total value of residential sales to breach R2bn again this year, after Plett hit the R2bn mark for the first time in 2021. That compares with sales of about R1.1bn achieved in 2020 — up 82% year on year and a colossal 150% ahead of the R812m recorded in 2019.
Average sales prices in Plett have simultaneously surged 40%, from R2.25m in 2019 to R3.15m.
The housing market bounced back and is now even stronger than it was last year — and 2021 was already a record-breaking year for our network
— Adrian Goslett
In Cape Town, Pam Golding Properties (PGP) sold more R20m-plus homes on the Atlantic seaboard in the first half of 2022 than in the whole of 2021, says group CEO Andrew Golding.
Key drivers, he says, are the pandemic-induced appreciation for luxury lifestyle properties in scenic surrounds, ongoing semigration among local upcountry buyers, and a return of international buyers to SA’s shores.
He says there are now more German buyers in the Cape Town market than at any other time since the Mother City’s previous housing boom, in 2015.
The rebound in demand for big-ticket trophy homes has pushed prices in some of Cape Town’s sought-after suburbs to record highs. In Camps Bay, for instance, the median selling price is up a whopping 50% over the past two years, to R15.2m (January-April). That compares with R12.2m in 2021 and R10m in 2020.
PGP recently also sold a holiday home in Simon’s Town to a UK-based buyer for R19m. The previous high achieved in the False Bay village was R14m.
Golding says there’s also no slowdown evident yet in demand for properties in high-end golf and lifestyle estates across major SA cities and popular coastal areas.
He refers to data from Lightstone Properties, which shows the number of homes sold in gated estates as a percentage of total residential sales recently touched 17%, up from less than 14% in 2019/2020.
Golding notes demand for buy-to-let properties is also on the rebound. He says this segment rose to 7.8% of total mortgage loans granted in June, the highest level in 12 years, according to stats from mortgage originator ooba.
House prices remain similarly buoyant, despite an overall slowdown in the rate of growth. Golding points to average house price inflation slowing from a multiyear high of 5.76% last year to 4.65% in the first half of 2022, which he says is still the highest growth recorded since 2016.
Seeff Property Group chair Samuel Seeff also says the market has remained unexpectedly robust, especially at the R10m-plus end.
“We have also seen a notable uptick in the R3m-plus price band,” he tells the FM. “So much so, that our average selling price for the first half of 2022 stands at R2.3m, which is a significant 13.2% up on the R2.033m average for 2021 — due obviously to a larger proportion of high-value sales.’’
Carl Coetzee, CEO of mortgage originator BetterBond, confirms that much of the activity in recent months has been in the market priced above R3m, which comprises mostly “repeat buyers who are less affected by interest rate fluctuations”.
BetterBond’s mortgage approval volumes in this price band are up nearly 32% in June alone (year on year), which Coetzee says suggests middle- and upper-income buyers are still looking to cash in on single-digit interest rates.
A new trend in multigenerational living is also driving sales, he notes. “That’s resulted in households combining their income to invest in larger properties that can accommodate extended families,” he explains.
Industry players say banks’ eagerness to continue to grow their share of SA’s lucrative R1.6-trillion mortgage lending pie is providing an important underpin for the market. Banks are not only pricing home loans more competitively, but they also require lower cash deposits these days.
Figures from ooba show the average deposit required by banks dropped to 7% of the purchase price in the first half of 2022, down from about 15% pre-Covid. It’s the lowest level in well over a decade.
Banks are also offering buyers more attractive pricing, with loans sourced by ooba in the year to date granted at an average interest rate of prime plus 0.3%, a level last seen in mid-2010. Pre-Covid, buyers were lucky if they could secure a home loan rate of less than 2% above prime.
The question is whether rampant mortgage lending will come back to bite the banks. Will rising interest rates and a spike in living costs cause households to default on bond repayments, as they did in the wake of the 2008 financial crisis, leading to large-scale distressed sales and writedowns?
There’s no evidence of that yet. The National Credit Regulator’s latest consumer credit market report shows the number of mortgage accounts in arrears for more than 30 days has hardly moved over the past two years — from 8.97% in the first quarter of 2020 to 9.43% in the first quarter of this year.
Moreover, economists expect a soft landing for SA’s mortgage and housing markets. FNB economist Koketso Mano says sales volumes will no doubt slow over the coming months, given expectations of three more rate hikes to come. That should see prime return to its pre-Covid levels of about 10% by January.
“Nevertheless, we expect relative resilience,” says Mano. Despite significant headwinds facing the SA economy, she notes that many households are better off financially now than they were before the pandemic.
“A post-lockdown wealth accumulation, buoyed by ultra-low interest rates, has strengthened household balance sheets. In addition, debt-to-income and debt-servicing cost ratios remain low by historical standards,” says Mano. “We expect these to remain relatively well behaved, even with the steeper interest rate hikes.”
That should support housing activity over the coming months, especially among affluent buyers. As Mano notes, many in that bracket have benefited from a strong recovery in stock market and investment income over the past two years.
As such, FNB has maintained its earlier forecast for house price growth to average 3.5% for the year as a whole and 3.4% for 2023. That’s not too shabby, considering these growth levels are not materially lower than the multiyear high of 4.2% recorded by the bank in 2021.
Banks’ eagerness to grow their share of SA’s R1.6-trillion mortgage lending pie is thought to be providing an important underpin for the housing market
— What it means:
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