Is The Present Surge in Residential Property Sales A Temporary Bubble?
South Africa and the world are in the middle of a global pandemic. According to Marc Coetzee of Evo Home Loan Experts, they took at the beginning of the economic lockdown all the advice possible from economists and experienced property leaders to model what they may expect from home sales. Surely the property market should be experiencing some of the worst conditions in recent memory?
The overall consensus was overwhelming - the South African Economy will contract aggressively over the short term and the long term effects of job losses will be felt for a number of years. This in turn will have a very negative impact on consumers affordability and that MUST impact the property market negatively?
Well, if all that is true, and surely it must be, why then has Evo grown Intake Revenue by 73% and 54% of units bonded for June year on year, and the growth for July is even stronger?
According to Marc Coetzee a few factors need to be considered. Firstly, and most importantly, South Africans are a resilient nation! We've faced many challenges in our young democracy and we continue to get up, show up and live on. We believe and trust that this pandemic will disappear as quickly as it appeared, but property ownership will remain a life goal that South Africans strive to achieve.
This belief is strongly supported by some interesting data. Right now 55% of all home loan applicants are first time buyers and 67% of all applicants are black South Africans. This shows that no matter what gets thrown at us, South Africans want to own their own homes.
Secondly, we are in an interest rate environment that hasn't been seen in SA for over 5 decades. To put it plainly, it's cheaper to buy a home now than rent and South Africans have begun to realize that homeownership is now becoming an affordable reality.
According to Marc Coetzee he is hesitant to say that the market will remain as strong as it now for an extended period, because we must take some degree of pent up demand into account. But, in his prediction is that the crazy volumes they are experiencing now will cool off a bit in the next couple of months and then we'll settle into a normal healthy property market.
So, NO, it's not a bubble!
According to FNB's property economist, Siphamandla Mkhwanazi, pent-up demand is one of the key drivers for the South African property market's rebound in July, in addition to record-low interest rates and lower transfer duties. However, he is not so convinced this will be sustained and predicts a likely W-shaped recovery as opposed to a V-shaped one.
According to Mkhwanazi there is still a great deal of uncertainty around the lasting impact of the [Covid-19] pandemic and FNB expects a significant weakening in labour market conditions which will relay into a greater downward pressure on house prices in the medium term. The current pent-up demand will likely not be sustained, and is unlikely to replace the demand lost due to very weak labour market outcomes. Buying decisions were taken before the commencement of the lockdown and some of these are delayed purchases, on the back of significantly lower transfer duties announced in the February 2020 budget, which came into effect in April this year. The record low mortgage rates are also incentivising renters to buy and first-time buyers to front-load their purchasing decisions as monthly mortgage payments have come down significantly. According to Mkhwanazi sales that would otherwise have taken place sometime in future are happening now, with some buyers looking to fix mortgage rates while they are at record lows, fearing that they might increase in the near future.
Mkhwanazi also points to "early signs of behavioural shifts" with homeowners reassessing their housing needs and preferences as a result of life in lockdown. Anecdotal evidence shows rising demand for bigger properties [mainly freestanding homes], notably in less crowded 'second-tier' cities," he says. "The growth [in] working from home is creating demand for bigger homes which can offer additional features such as home gyms, and conducive environments for home-schooling."