Buying a house in South Africa is about to get a lot harder
The political and economic events that have rocked South Africa have also shaken the confidence of prospective home buyers, and this is reflected by a decline in the number of home loan applications.
Data from bond originator, BetterLife Home Loans, showed that the number of applications received in March was 3.2% lower than the same period a year ago.
“This is especially disappointing in the light of the positive sentiment that was beginning to emerge in the market and had led to an encouraging increase in the percentage of first-time buyer applications since the start of the year,” said BetterLife Home Loans CEO, Shaun Rademeyer.
“Things were definitely looking up. The rand had gained value against all the major currencies, inflation was coming under control as food prices stabilised and the Reserve Bank was even considering an interest rate decrease towards the end of the year. Now there is concern that this will all be reversed as the implications of SA’s ‘junk status’ investment rating become apparent.”
Rademeyer stressed that the local property market has weathered worse conditions – “and fortunately many consumers are in a less exposed position financially than they were when recession hit in 2009, so we can expect a lower home loan default rate this time around”.
“We also expect home demand and sales to be buoyed by our growing population, and that will help to underpin house prices. Nevertheless, prices are bound to grow at a slower rate now,” he said.
BetterLife said that for those looking to jump onto the property ladder may find it difficult given the economic and political uncertainty that shrouds the country.
“It is going to become really much more difficult in six to 12 months’ time to obtain a home loan. The banks are going to become increasingly cautious about extending any kind of credit as the ratings downgrade starts to bite, and will apply loan qualification criteria even more strictly than they do now,” said Rademeyer.
BetterLife data showed that the average approved bond size is currently R861,000 – up 5.4% over the past 12 months – less than the rate of inflation.
Among first-time buyers, the average bond currently being granted is R664,000, which is only 4.7% more than 12 months ago.
“And while buyers have been willing to pay bigger percentages of the purchase price as deposits, their response in many cases has been to ‘buy down’ in order to lower the actual amount of deposit cash that they need.
“In fact, our stats show that the average home purchase price has decreased in most income groups by between 2% and as much as 20% over the past 12 months. Only those with incomes of over R40,000 a month have been ‘buying up’ – and then not by much,” said Rademeyer.
The BetterLife Home Loans statistics represent 25% of all residential bonds being registered in the Deeds Office.
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