With the easing of the hard lockdown, and moving forward, the 50-year low interest rates coupled with the zero transfer duty payable on properties up to R1 million has fuelled high interest and significantly increased activity among first-time buyers – some of whom were formerly renting but now find affordable and appealing opportunities to gain a foothold on the property ladder.
This is according to Dr Andrew Golding, chief executive of the Pam Golding Property group, who said that in the current environment, millennial buyers can get into a property or suburb that they might not have been able to afford a year ago.
According to FNB, data from the Deeds Office shows that younger buyers (below 35 years) now account for 43% of residential sales – up from 38% in 2019.
With a population of predominantly ‘young’ buyers, the increasing demand for accommodation to buy is helping drive activity in the residential property market, with a ripple effect upwards across all sectors of the market and even creating stock shortages in high-demand areas.
If managed correctly, apart from enabling security of tenure going forward, homeownership is one of the best ways to create wealth and, in South Africa, plays a critical role in economic transformation, the property specialist said.
According to Lightstone, most first-time buyers enter the residential property market in the R700,000 – R1.5million price band, rather than in less expensive valuation bands; both first-time and repeat buyers mostly want three bedrooms and two bathrooms; and women make up most of the first-time buyers while men make up most of the repeat buyers.
Sectional title and estate properties are particularly appealing to female buyers as they tend to offer better security and this steady rise in women’s buying power is reshaping the local property market.
According to Ooba, the percentage of first-time homebuyers has been rising steadily since late-2007 (available data) with a clear acceleration in the percentage of first-time buyers in recent months – briefly reaching a record high of 56.2% in May this year – with the underlying trend remaining upward.
Ooba also noted the approval rate for first-time buyers has averaged 80.1% from January to October 2020, which compares to an average of 80.0% during 2019 as a whole. In 2016, the approval rate for first-time buyers was just 68.5%, reflecting a marked improvement in recent years.
Positively for home buyers, the deposit that financial institutions require from both first-time and repeat buyers is declining. For the year to date, the deposit – as a percentage of purchase price, for first-time buyers has averaged 7.0% while for repeat buyers it has averaged 9.03%, Ooba found.
Loan applications for 100% bonds have risen steadily in recent years, reaching a peak of 67.5% in June 2020 before easing back to 62.5% in October, with the approval rate for 100% applications being 80.4% during the 10 months January to October 2020.
Work from home:
Historically, ‘working from home’ segmented people into roughly three categories; the self-employed professional, the young start-up, and the cottage industry entrepreneur. For almost everyone else in an established business or the corporate world, it meant a daily, costly, time-consuming commute to an office.
Lockdown was a social disrupter but also gave rise to a new approach to how we work and more importantly, where we are most productive.
While manufacturing and hospitality industries have no choice but to centralise, many people are now presented with promising options. Underutilised spare rooms are being redesigned as working hubs. For young professionals and first-time buyers, a sectional title unit with an extra bedroom, is likely to be an attractive choice.
For families, a freehold home with good Wi-Fi connectivity in a peripheral area, retirement village or a country estate, solves the dilemma of choosing income generation over quality of life.
The conversion model
Buying a property that required a deposit, mortgage approval, and dual household income to service repayments, meant that owning a home was out of reach for the majority of young South Africans. The market has swung in their favour this year, and with the lowest interest rates in nearly 50 years, buying rather than renting, is a realistic prospect.
First-time buyers are discovering that unwanted office and retail space must still earn its keep and a conversion to residential units, is a win for both sides.
Precincts that were deserted after office hours now show signs of life as young people transform them into smart, urban hubs.
This is a global trend as more and more people move to co-living spaces. Essentially communal living, co-living brings together a community of people who live in small personal spaces and share communal areas like work areas and kitchens. The buildings are tech enabled and offer a variety of amenities.
The primarily appeal of co-living is that it allows people to live in areas that they could not afford in the traditional housing market. The sacrifice is that their private space is typically smaller. Co-living also generally offers flexibility (which is important in uncertain times) with daily, weekly and monthly stays generally available.
Co-living also goes some way towards addressing a significant social ill – loneliness. A 2020 research report indicates that three out of every five Americans are lonely.
Aimed at the young professional in South Africa’s major metros, HOMii is a local example – an app whereby users can book stays at apartments in buildings in major cities which offer co-working hubs. It offers an accessible alternative to traditional renting as there is no lease agreement while credit checks or deposits are not required.
Accommodation options include single and shared rooms with flexible options (daily to several months).
Gated lifestyle estates rise in prominence
With many people now spending the majority of their time at home, working or studying, homes have become more than a sanctuary, they have also evolved into ‘quarantine bubbles’, with homes on secure estates, with an abundance of safe open space and restricted access as well as a variety of amenities, becoming increasingly popular among those taking into account potential future quarantine requirements.
Move to second tier cities and smaller towns
FNB data shows a sub-trend of homeowners reassessing their housing needs and preferences as a result of life in lockdown, with some relocating to less crowded second-tier cities and smaller towns.
For example, Port Elizabeth is a second-tier hub with a safe, convenient lifestyle in an affordable coastal location. More and more of these locations offer urban convenience and quality of life with a lower price tag.
The 2020 shift to remote working has given South Africans another reason to consider semigration. If you can live and work anywhere, it makes sense to live somewhere with a better quality of life and less expensive lifestyle and/or housing.
Sustainability becomes increasingly mainstream
An increasing number of environmentally conscious home-owners and buyers across all age groups are looking beyond the aesthetic of a potential new property in pursuit of sustainability of the planet.
Energy and water efficiency and sustainable use of materials top the wish list but there’s a long-term strategy in place. Buyers are also looking sharply at rising utility costs and erratic municipal service delivery. As a result, the house of their future is ideally off-grid and independent.
Rise of Tech cities
According to a recent Tech Cities report by Savills, tech lifestyle cities are seeing a growing emphasis on health and wellness, as they seek to attract top talent.
Cape Town, home to some of South Africa’s largest financial institutions, with fintech start-ups taking advantage of the mature financial ecosystem in the city to scale up and gain notice, and with relatively inexpensive flex-working or co-working space, is ranked among rising global tech contenders.
According to Invest Cape Town, almost 60% of the country’s start-ups are located in the Mother City, while Venture Capital investment in Cape Town grew by 147% from 2016 to 2019.
According to Savills, top Tech Lifestyle Cities meet high standards of air quality, access to green space and have smaller geographic footprints while also providing the services and products that tech talent seeks today, such as fast broadband speeds and an affordable vegan burger, as explored in Savills Digital Nomad Essentials Index.
Looking ahead to 2021
“The fact that interest rates are so low and banks have attempted to help people keep their homes – with payment holidays and the like – rather than repossessing their homes means that the market has not been flooded with surplus stock, even though there has been some uptick in the number of sales due to financial pressure, said Golding.
“The full economic impact of the lockdown has yet to be felt as a still sluggish economy is likely to result in more business closures and job losses.
“While interest rates are expected to remain at their current low levels until late-2021 at least, this remains a positive for the market. However, it remains to be seen whether government will increase the tax burden in the 2021/22 National Budget as it attempts to contain its debt levels.”
Pam Golding said that the unexpected strength in demand from predominantly young buyers, coupled with the fact that fewer homes have come onto the market due to financial pressure, explains why prices have held up better than expected thus far. Whether this is sustained into 2021 remains to be seen, said Dr Golding.
“While it is far from clear how the work from home vs office issue will be resolved in the long term, it appears that overall people will be freed to some extent from being completely office bound. This in turn means that many towns and suburbs, which previously were too far from work and schools and offering more affordable accommodation, are now feasible for homeowners.”
Dr Golding said that in many ways the pandemic has not introduced new trends but rather has significantly accelerated existing trends, such as the move to online, remote working and the shift to co-working.
“Although health risks remain a concern, the fact that people may increasingly work from home – at a time when more and more households consist of single people – the need for community is likely to encourage the trend towards co-working and co-living.
“While the extensive damage caused to the economy by the lockdown will take years to repair, on balance it may well have created a more flexible work and home lifestyle while the concerted interest rate cuts appear to have attracted numerous first-time buyers into the market who would not otherwise have purchased a home.”