The average purchase price for a house in South Africa right now – and why people are taking out bigger loans

Dr Andrew Golding, chief executive of the Pam Golding Property group, says that the average value of the homes sold in South Africa during the first half of 2021 was higher than during the course of last year.

Golding noted that housing stock in South Africa remains predominantly freehold, which comprises 81.2% of all homes, and sectional title homes 12.4%. However, while residential estate homes account for only 6.4% of all housing units, they account for 17.2% of the value of all homes in the country

“Over the past five years (2017 – 2021 year to date), the largest number of homes sold was recorded during the final quarter of 2020, when approximately 78,000 units were sold.

“While the pace of sales slowed during the early months of 2021, the total number of sales recorded during the first half of the year – approximately 128,000 units – is the highest sales number recorded during the first six months of the year over the past five years. This shows surprising resilience in the national housing market, despite the tough economic environment,” he said.

Golding said that the total value of home sales across the market in South Africa showed a far stronger surge after the hard lockdown was eased last year, soaring to R85 billion in the final quarter of 2020, peaking at the same time as unit sales.

“While the total value of sales has softened somewhat during 2021 to date, it remains elevated compared to the levels of the previous five years – unlike the number of units, which are now back to a similar level as recorded during the previous five years. This suggests that the average value of the homes sold during the first half of 2021 was higher than during the course of last year – a view echoed by FNB research.”

During the first half of 2020, estate unit sales declined by 47.6% compared to the first half of 2019. However, these then more than doubled (by +109.1%) during the first half of 2021, rising to the highest number of estate sales recorded during the past five years.

Notably, said Golding, during the first half of 2021 all three property types registered the highest level of sales over the past five years, with a particularly large increase in the value of freehold homes sold compared to previous years.

Citing FNB data, Sandra Gordon, Pam Golding Properties senior research analyst, said: “The strong growth in mortgage extension despite the weak economy, reflects a shift in demand from first-time buyers to more affluent buyers purchasing more expensive properties.

“The first wave of demand from first-time buyers followed the initial relaxation of lockdown restrictions which saw young adults take advantage of the lower interest rates to purchase homes in the lower price-bands – notably in the R750,000 – R1.5 million price range.

“The second surge, which FNB estimates began in the first quarter of 2021, has largely been driven by older, more affluent repeat buyers. FNB notes that the 14.5% rise in the size of the average mortgage loan processed by the bank in the 18 months to July suggests wealthier South Africans are trading up to more expensive homes. This shift to older, repeat buyers is also reflected in the decline in applications for 100% loans.”

The key driver of the housing market over the last 18-months has been the historically low interest rate which has come down by 30% since the start of 2020, said Samuel Seeff, chairman of the Seeff Property Group.

“An important boost for the market has been the banks’ propensity to lend. Since mid-2020, the pace of mortgage loans granted has accelerated and is now at the highest level since the introduction of the National Credit Act in 2007.

“Stiff competition among the banks for a bigger share of the home loans market has translated into higher approval rates, higher loan values (LTV rates), more competitive interest rates (often below prime) and 100% home loans (often plus costs) for first-time buyers,” he said.

Data from bond originator, Ooba shows that the average house price in the third quarter was up 5.4% from a year ago, to R1.375 million, and up 3.2% for first-time buyers, to R1.117 million. The average age of a bond applicant was 38, three years higher than the average age of a first-time buyer.

The local banking industry also appears to be optimistic about the future of the South African residential property market, said Ooba chief executive, Rhys Dyer. The current lending landscape remains fiercely competitive, which is evidenced in the softening of their deposit requirements and their approvals at interest rates on average below prime.”

Meanwhile, data from the RE/MAX National Housing Report for Q2 2021, showed that the property market continues to exceed expectations in the third quarter of this year.

Along with an increase in the number of transactions, house prices also climbed steadily in the third quarter of this year. Lightstone’s data shows that the nationwide average price of sectional titles for Q3 2021 is R1,056,417, an increase of 9% compared to the same period last year.

The nationwide average price of freehold homes is R1,352,712, which is a 2% increase compared to Q2 2021 and a 21% increase compared to Q3 2020.

According to Lightstone, year-to-date, the average price change per annum for sectional titles is 6% and 12% for freehold properties.

“House price appreciation is strongly linked to the rules of supply and demand. When buyer activity is high, sellers are more likely to achieve higher asking prices. This then causes greater house price appreciation until the demand levels out,” Regional director and CEO of RE/MAX of Southern Africa, Adrian Goslett said.

“Lightstone Property data also reveals that the average bond amount granted during this period amounted to R1,287 million, up 16% since Q3 2020.”

Read: The average purchase price for a house in South Africa right now amid shifting banking trends