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Tenants Thinking Of Becoming Homeowners Should Move Fast

Tenants Thinking Of Becoming Homeowners Should Move Fast

09 June 2021

It’s certainly still a buyer’s market out there but homes are selling faster and prices are starting to rise again … If you want to take advantage of the low interest rates and other market factors, the time to move is now

“Since January 2020, the repo rate has been lowered by 3 percentage points to its lowest level in decades, prompting many tenants to buy their first homes,” wrote Johette Smuts, PayProp’s Head of Data Analytics. In Payprop’s Q1 2021 Rental Index, which is based on data from their payment platform, she described this as “an exodus of more creditworthy tenants from the rental market”.

An “exodus from the rental market” sounds like a boom for the residential property market. Is there a great deal of buying happening, despite the Covid-19 pandemic?

“You could say that,” says Just Property CEO, Paul Stevens. “Comparing Q1 2021 with the same period last year, the combined (sales and rentals) turnover of our franchise network grew 14.36%. Looking at sales alone, we saw sales commission increase by 82.81% in the Eastern Cape, 22.53% in the Western Cape, 14.07% in KZN and 30.55% in our outlying (non-metro) areas. 

“Looking at sales units, the Eastern Cape saw 43.68% growth and our outlying areas achieved 29.87%. Our top 10 performing franchises in the sales space for Q1 2021 were Port Elizabeth, Stilbaai, Zululand, Lephalale, Kalahari, Heidelberg, King Williams Town, N1 City and Margate.” 

Stevens references an optimistic “good news story” webinar, presented by Carl Coetzee, CEO of BetterBond, to Just Property agents in late April 2021. “BetterBond accounts for 32% of the bond origination business in South Africa, so their data is a good representation of what is happening in the market,” says Stevens.

  • YOY (Q1 2020 vs Q1 2021) they have seen 40% growth in the number of new bond applications received, with the Western Cape leading the way with a 48.6% increase, Johannesburg South East growing by 31.6% and the Free State and Northern Cape growing by 34.6%

  • YOY bond registrations within their client pool have increased by at least 27%. The Eastern Cape saw a 94% increase in January 2021, the Western Cape was 70% up in February 2021, and Johannesburg South East showed an 82% YOY increase in March 2021.

Coetzee says this is the “best market, from a BetterBond point of view, that we have seen in the last 10 years”. He believes that this is driven by the low-interest rate and says that it appears that retrenchments have not impacted the buyer market as expected.

Another indicator of a property boom, says Stevens, is the time that properties are remaining on the market before selling. According to the FNB Property Barometer of April 2021, the average time on the market has steadily decreased from 14 weeks and 1 day in Q2 of 2020 to 8 weeks and a day in Q1 of 2021.

Lightstone’s April 2021 Residential Property Index Report, confirms that the historically low-interest rates have had an overall positive impact on the property sales market: 

  • Most of the country’s provinces are exceeding their five-year highs

  • The higher value bands, most sensitive to interest rate changes, are making a positive turnaround, and

  • The performance gap between coastal and inland properties is starting to widen again in response to the favourable interest rates.

The provinces showing the best house price rises/inflation are North West Province at 7.7%, Mpumalanga at 7.2% and the Eastern Cape at 6.6%. Those thinking about taking advantage of prevailing conditions should act fast: Coetzee predicts double-digit house price growth in the near future, with the average home-purchase price in their client data pool up 9.46% in the 12 months ending March 2021. He also notes that the affordable segments (=/- R1m) still see demand outstripping supply. 

More reason to get into the market now is that while most properties are still selling for less than the initial asking price, this figure is dropping. While 74% of properties in Q1 2021 sold below the initial asking price, that’s an improvement on 80% in Q1 2020 (Source: FNB Property Barometer, April 2021).

BetterBond’s Market Indicators show that while the average age of first-time homebuyers has remained steady year-on-year at 36, the average price they are paying has risen from R956 317 to R1 065 246 (an increase of 11.39%). And average loan amounts for first-time buyers have increased by 12.77%. While these rises could be driven by the current vibrant buyer’s market, there is another interesting figure to note: BetterBond’s data shows that these first-time homeowners are earning 13.56% more than last year’s first-time homeowners.

Could this be a sign that tenants have realised that the time has come to buy before prices recover? That the old 10% mental calculation no longer stands? That bond repayments on R2-million are no longer around R20 000 a month, but are down to around R16 000? That what they were paying in monthly rental could be better put towards paying off a bond?

“This may well be true,” says Stevens, but he adds a word of caution: ‘New homeowners need to remember that there are costs associated with homeownership that they are not responsible for as tenants. These costs can add up! They include building and short-term (contents) insurance, levies, as well as municipal rates and taxes. The best advice I can give is to consult with a local agent who can unpack these costs in more detail.”

Sound advice. 

That said, all indications suggest that anyone thinking of swapping a rental for a home of their own should move fast.

Trends that Stevens is seeing in the market right now include:

  • First-time buyers continuing to dominate property transactions

  • Rental vacancies continuing to be high, particularly in areas where new developments offer opportunities for tenants to step onto the property ladder (no transfer duties and monthly bond repayments that compete with rental rates)

  • Hype around “Zoom towns” fading. “While the so-called third wave may support extended interest in property in smaller towns, the winners will be those properties close to transport links. These offer greater flexibility to work from home or travel to work easily. Mossel Bay is a great example of this,” Stevens notes.

Further reading: Winning Moves and Property Trends For 2021 by Just Property CEO, Paul Stevens. 

 

For more information on Just Property please visit www.just.property or call (087) 550 2258.

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