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Picture: Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa; Hayley Ivins-Downes, head of commercial at Lightstone Property; Andrew Golding, chief executive of Pam Golding Properties
It is one year since the real estate industry with the rest of the country was thrown into a hard lockdown. The residential real estate sector surprised all by emerging as one of the sectors that proved to be one of the most resilient during the pandemic.
After the hard lockdown took effect on 27 March last year, it took months before estate agents would be unable to conclude property transfers with the deeds offices closed and real estate not classified to operate until Alert Level 3. Yet the industry saw an unexpected recovery as soon as restrictions eased – a turnabout that is directly attributed to the South African Reserve Bank’s (SARB) five consecutive rate cuts that brought the interest rate to just 7%, considered the lowest it’s been for almost five decades.
“None of us could have predicted that the initial two-week lockdown would turn into a series of varying restriction levels implemented over the course of twelve months and beyond. Similarly, nobody in the industry could have predicted the increased levels of activity within the property market that followed the months of hard lockdown,” says regional director and CEO of RE/MAX of Southern Africa, Adrian Goslett.
The residential property market was slack going into the pandemic. Initially the resurgence of buying activity was attributed simply to pent-up demand yet indications are that buying interest remains high, especially in the low to medium price range … but how long will this last?
Mixed reviews on 2020’s sales performance
According to a recent Lightstone survey of 500 estate agents just 51% of them met their sales targets in 2020, down from 69% in 2019. In addition, 25% of the estate agencies surveyed said they had to retrench employees and 68% of estate agents said their personal finances were directly impacted.
The results of the survey stand in stark contrast to reports from some of the country’s top real estate brands that they had record sales and were able to employ more agents and open new offices. For example, Dr Andrew Golding, chief executive of the Pam Golding Property group, notes that in spite of two months of (virtually) no trading, they exceeded their 2018/19 (South Africa) numbers both in terms of units and value in line with their experience of the market. RE/MAX also reports an excellent year in terms of sales and growth.
However, Golding notes that they did see a decline in the number of pure cash transactions, fewer investor buyers and initially a continued sluggish top-end. This ties in with the results from another Lightstone survey on the number of property transactions concluded in 2020. According to their data 89 090 properties (amounting to R157.7 billion) were sold by December 2020, compared with 261, 097 properties (amounting to R210 billion) sold in December 2019 and 315 899 properties (amounting to R243 billion) sold in December 2018.
According to Hayley Ivins-Downes, head of commercial at Lightstone property, the estate agents surveyed also confirmed the accelerated digitalisation of their services, which impacted a range of activity, from networking to viewing properties.
Estate agents said that 14% of buyers bought properties without physically being there, double that recorded in pre-Covid years. Despite social distancing and lockdown restrictions, estate agents also reported being able to maintain and grow their client base.
Most of the estate agents surveyed by Lightstone maintained a positive outlook for the rest of the year, notes Ivins-Downes because they expect the buyer’s market to continue in 2021, at least as long as the repo rate remains steady and the interest rate low. While nearly 26% of estate agents said their companies had already recovered, just more than half of the respondents (51.4%) believed their company should recover in 2021 while nearly 23% said recovery would take longer, if ever.
“Though there is no doubt that COVID-19 had a challenging impact on real estate agents, the majority of those in the industry have maintained a positive outlook for the year ahead. 2021 will bring challenges, but the advances and adaptions to the digital environments and tools alongside this sense of optimism, will ease the journey ahead,” she concludes.
Buyers’ market expected to continue*
There’s no denying that last year’s successive rate cuts by the South African Reserve Bank (SARB) played a key role in the unexpected increase in home buying activity seen since June 2020. The SARB appears intent on keeping the status quo for awhile longer with last week’s announcement to keep the repo rate unchanged at 3.5% (and the interest rate at 7%).
“The interest rate has been an enormous game changer for the real estate market. It meant that where economists and market commentators had predicted that we would emerge from the lockdown with a market in distress and gloom and doom was ahead for prices, none of that came to be,” comments Samuel Seeff, chairman of the Seeff Property Group. He continues that in fact, while activity in the June and July 2020 period was driven by pent-up demand, the reality is that the interest rate boosted demand, especially from first-time buyers, many of whom had been renting and took the opportunity to get into the market.
However, not all property price ranges had equal benefit from the lowered interest rate. Seeff notes that “it has been a tale of two markets, with the low to mid-price sectors to R3 million performing very well, while the luxury market remains muted, largely due to lack of confidence as these buyers are not reliant on mortgage finance and the reinterest has offered little incentive. Rather, they want to see GDP growth, policies and action of the SOEs and corruption”.
Another important game changer which came as a result of the pandemic and lockdown has been the significant technological advance made in real estate within a period of 8 months which might otherwise have taken 3-4 years.
More applications for home loans made and approved – Since 2020’s Q3 mortgage brokers have seen a year-on-year increase in the number of home loan applications. According to FNB, 2020 registered the highest volume of mortgage approvals in South Africa in more than a decade. Shaun Rademeyer, CEO of MultiNet, says their stats show that they increased their average submission by 33% compared to the same period in 2019. Bondable registrations at the deeds office from June 2020 to December 2020 was up 18.40%. “The knock-on effect of the South African Reserve Bank’s aggressive approach to the repo rate is still being realised, with the total value of home loans granted to buyers (excluding cash deals) increasing by 35% year-on-year for the six months ending January 2021,” comments Carl Coetzee, CEO of BetterBond.
Three months into 2021, Rademeyer says they’ve seen the trend continue with their home loan submissions up 6% in volume in Q1 2021 vs Q4 2020. The latest FNB Property Barometer (dated February 2021), notes that interest rate-induced demand remains strong, although there are signs that momentum is slowing.
Better-than-expected house price growth – FNB’s data is also showing better-than-expected house price growth. House price inflation for February increased to 4.2% year-on-year, up from 3.9% in January. FNB attributes the resilience of the property market during the last few months to “ultra-low” interest rates which made bond payments more affordable for those whose income was not affected by lockdown. In fact, the residential property market has so far proved to be one of the country’s more resilient sectors, notes Golding. “While some analysts warned that the pandemic and lockdown regulation could cause property prices to slump by up to 15% last year, house prices actually rose by an average of 3.05% in 2020, according to Lightstone,” he says.
First-home buyers 2020’s biggest success story
The uptick in first-home buyers is certainly one of the greatest success stories of last year’s property market rebound. While first-home buyer applications increased to more than 70% between June and December last year, they are also able to afford far more home than this time last year. “According to BetterBond’s applications, the average purchase price for a first-home buyer increased by almost 10% in February, year-on-year. A buyer with a monthly salary of R25 000 is now able to afford a home of just over R967 000, with a monthly instalment of R7 500,” continues Coetzee. As there is no transfer duty payable on a bond of less than R1 million, a first-home buyer would only have to pay a deposit and the legal costs, a considerable saving that makes home ownership more attainable.
As mentioned, most of the home buying activity has been in the low to medium price range. “It is essentially only the R750 000 to R3 million price sectors driving the activity that we continue to see in the market,” confirms Seeff. Rademeyer notes there is sentiment that stock is becoming a concern in the property market between R1.2 and R1.5 million continues to dominate the industry. However, he says many feels that the banks payment holidays coming to an end could see some influx of sellers in the market.
*This section was expanded with additional commentary after the original article was published on 1 April 2021. Ed.
SOURCE: First Published on Everything Property