South Africa’s property market is recovering – just not in the way you may have expected

The South African Reserve Bank’s (SARB) Monetary Policy Committee hiked the repo rate by 75 basis points – making financing a home more expensive with the prime lending rate to 9%.

Property experts are quick to point out that interest rates remain below pre-Covid levels.

“It is relevant to bear in mind that although interest rates may be rising as the bank normalises monetary policy after the remaining restrictive regulations associated with the pandemic were removed, they still remain below pre-Covid levels (of 10%) and as a consequence are still attractive for homebuyers,” Dr Andrew Golding, chief executive of the Pam Golding Property Group.

“More significantly, banks retain their appetite for extending mortgages to homebuyers, which is providing a solid underpinning for the local housing market, even as we move into an era of gradually rising interest rates and increasing pressure on household finances,” he said post the rates announcement towards the end of last month.

The banks’ appetite to extend mortgages is reflected in the most recent Ooba data, which showed that mortgages as a percentage of the purchase price have risen to a level of 93% in recent months (six-month moving average), which is the highest level in well over a decade.

As a result of this, activity in the SA housing market remains buoyant – with properties sold during the first half of 2022 almost matching the number of transactions recorded during the first half of 2020 and remaining comfortably higher than during the first half of 2019 prior to the pandemic.

“What we are seeing is that residential property is increasingly being seen by South Africans across all walks of life and in particular, the younger generation, as a sound investment class. Encouragingly, the demand for investment (or buy-to-let) properties continues to rise,” said Golding.

He said that while there may be headwinds facing the housing market – such as rising inflation, increasing interest rates and a sluggish local and global economy – an ongoing positive underpinning for the market is the appetite of financial institutions to extend credit.

“Not only are they pricing home loans competitively, they are also requiring lower deposits as a percentage of selling prices than we’ve seen in over a decade. And as always there are always high-demand areas in various regions, plus the semigration trend continues to coastal and more countrified areas for a variety of reasons, as well as sought after metros and commercial hubs.”

The semigration trend is evidenced by the continued acceleration in coastal house prices, with the price premium compared with non-coastal property widening to +3.1% which is the highest since mid-2005.

Value trumps volume

Lightstone data showed that the market is recovering, just not in the way many might have expected, with value trumping volume when it comes to the resurgence of the property market.

Hayley Ivins-Downes, head of digital at the data and analytics firm said total transfers for Q1 and Q2 in 2022 amounted to 129,642, marginally down from 2021 when 130,102 transfers took place in Q1 and Q2.

However, she said the total purchase price soared to R156 billion in 2022, well up on the R69 billion recorded in 2020 and the R112 billion in 2019.

The data suggests the property market was continuing its recovery from Covid-19 and showing signs of growth – despite both local and global economic and political challenges, Lightstone said.

Total purchase price

While the total number of transfers had fallen marginally, there had been a sharper decline in the volume of bonded transfers, 10.8% down in Q1 of 2022, and 5.9% down in Q2. Ivins-Downes said bonded transfers in 2022 dropped to 68,731, 53% of all transfers, from 74,986, 57% of all transfers in 2021.

Total volume of transfers

Total volume of bonded transfers

The total purchase price of all properties had increased from R153b in Q1 and Q2 of 2021 to R156 billion in 2022. The total purchase price of bonded properties declined from R104 billion in 2021 to R101 billion in 2022, said Lightstone.

Total purchase price

Total purchase price of bonded transfers

The graphs below demonstrated that while Gauteng accounted for 37% of all transactions in Q2 of 2022 compared to 24% in the Western Cape, sales values were the same in both provinces at R31 billion (36%) of total sales. This suggested that sales in the Western Cape were commanding higher values, the data specialist said.

In terms of provincial mix, Ivins-Downes said most transactions took place in Gauteng, with the Western Cape second and KwaZulu-Natal third.

Read: How much more you will pay on your bond after South Africa’s latest shock interest rate hike