After a year of the Covid-19 pandemic, Ooba has observed changes in both consumer behaviour and lending trends, resulting in a surprising boom in the local residential property market.
Rhys Dyer, chief executive officer of Ooba, predicts that the residential property market in 2021 will continue to show strong levels of activity, mostly driven by first-time homebuyers as a result of the low interest rates.
Evidence of the strong activity, he said, can be seen in the volume of Ooba’s home loan applications for Q4 20, which increased by 36% compared to Q4 19, with a 56% growth in the value of the applications received.
Applications from first-time buyers in Q4 20 were up by 36% compared to Q4 19, with a 59% increase in the value growth. The value of Ooba’s bond instructions to attorneys in Q4 20 was 56% up on Q4 19.
“The current low interest rate environment, as well as competitive home loan deals from the banks, creates an ideal buying environment for first-time homebuyers.
“Banks in Q4 20 were prepared to provide 100% home loans to a large percentage of first time home buyer applicants. 100% bond applications from first-time homebuyers in Q4 20 increased by 39% year-on-year with 80% of these buyers successfully obtaining finance,” said Dyer.
Individuals who currently rent property can in a large percentage of cases purchase their first property at a lower monthly cost than their current rental payment, he added.
According to Dyer, the appetite for banks to lend, especially at high loan-to-value’s (LTV’s), will drive the demand side of the market, especially for first-time homebuyers. However, ongoing Covid-19 interruptions to certain business sectors mean banks will be watching the economic drivers closely.
Ooba’s data show that during the fourth quarter of 2020, the Average Bond Size increased by 13.7% while the Average Deposit as a Percentage of the Purchase Price fell by 15.6%.
Likewise, the Average Bond for first-time homebuyers grew by 15.5% while the Average Deposit was down by 16.3%. On-going support from banks to continue to lend with no or very low deposit requirements continue to sustain robust property market activity.
“The bulk of residential property activity will be at price points that first-time homebuyers can afford. We expect strong interest in properties priced between R500,000 and R2 million,” said Dyer.
“However, this growth in demand will likely result in some stock shortages during the year, which will drive up the prices of second-hand properties in this segment. We anticipate an increase in new property developments to augment the inventory, making additional affordable homes available to buy.”
He said that activity in the luxury and high-end property market is expected to remain subdued. “Slow economic growth coupled with low confidence in the economy, is encouraging wealthier South Africans to limit their exposure to the local property market.”
With no immediate end in sight to the pandemic, buyers are prioritising their quality of life and new ways of working when purchasing a home. More space, a bigger garden and a home office are in demand. This may mean larger properties slightly further from the CBD may gain more appeal, said Ooba.
The fourth quarter statistics from Ooba show that the Average Purchase Price increased by 11.7% year-on-year reaching R1,349,337. The Average Purchase Price for first-time buyers fared even better, with a 13.7% increase, breaching the million-rand mark at R1,089,443.
Annual price growth has been driven by improved affordability due to the lower borrowing costs, coupled with the demand for larger, more expensive freehold properties.
The current constrained supply of properties for sale resulting from the heightened property market activity in the latter half of 2020 is also placing upward pressure on property prices in the lower price segment of the market.
“Our statistics show that the successful bond approval rate if you only apply for finance to a single bank is 59.7%, down 9.3% year-on-year.
“During Q4 2020, just over 80% of Ooba’s home loan applicants successfully secured bond approvals at an average interest rate of 0.02% below prime, underscoring the value of our home loan comparison services,” said Dyer.