The turn of the decade presents some interesting opportunities within the South African housing market.
As it stands, house price growth is slow and economic threats are plenty. Yet, after reviewing internal sales figures for 2019 and other industry reports, experts believe that the 2020 real estate market will hold as many opportunities as it holds challenges.
The weight of these challenges will be shouldered mostly by sellers as we continue to experience a buyer’s market where supply outweighs demand. The opportunity for sellers lies in when they choose to list their home. If, for example, they choose to list shortly after the announcement that interest rates have dropped to 9.75% (prime), they could capitalise on the potential uptake in buyers who are incentivised to take on home loans while interest rates are low.
Buyers too might enjoy the opportunity of securing a good rate on their home loan if they apply now while interest rates are low. Alternatively, buyers can take this time to improve their credit record by using the money they save on interest charges to lower their debts.
Beyond this, buyers are encouraged to capitalise on the fact that house price growth has been slow. Buyers should purchase now before house prices begin to grow at more unaffordable rates.
As much as the current market favours buyers, certain realities could also be used to the advantage of sellers. For example, by installing eco-friendly alternative energy sources to their home, sellers can choose to turn the ongoing crisis around our national power supply into an opportunity to add value to their home.
In terms of the challenges that sellers might face, larger homes are taking considerably longer to sell than in the past. The luxury market will continue to feel the pinch within this tight economy and the majority of transactions will continue to fall within the affordable price ranges. Sellers within this price bracket are therefore advised to partner with an experienced real estate professional so that the probability of their selling at full value will improve.
Similarly, buyers will continue to feel the pressure of the struggling economy which could hurt their chances of qualifying for a home loan and securing the necessary funds to purchase a home.
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This is how much the average house costs in South Africa – and why banks will offer favourable home loans in 2020
Data from home loan comparison service, Ooba, shows minimal growth of 1.8% in the average house price year-on-year from Q4 2018 to Q4 2019.
The average purchase price of first-time buyers performed marginally better, up 2.5% for the same period.
“Local residential property prices have experienced four tough years of flat to negative real growth.
Property price growth in 2020 is expected to perform in line with 2019 levels,” said Rhys Dyer, CEO of Ooba. “We anticipate nominal growth in the average purchase price of between 3.5% and 4% for the year ahead, largely tracking inflation.”
Dyer said that prospects for the residential property market during 2020 will be directly influenced by the ability for SA Inc. to ramp up economic growth.
“This year presents a key fork in the road for the economy. A ratings downgrade seems increasingly possible, exacerbated by the ongoing challenges facing almost all State-Owned Enterprises, particularly Eskom. The economy needs urgent and decisive action from policymakers to ensure much-needed stronger economic growth.”
The average purchase price climbed to R1.208 million, from R1.188 million in December 2018, while the average purchase price for a first time buyer climbed to R958,546, from R934,916. Ooba noted that the average age of a bond applicant is 38, versus 35 for a first timer.
Looking ahead, Dyer expects that the four key drivers of performance in the 2020 residential property market will be softer interest rates, improved property affordability, the banks’ favourable lending appetite and consumer confidence.
“The decision by the Reserve Bank this month to cut interest rates by 25 basis points will assist home buyers to meet their home loan and other debt repayments and will generate much needed consumer relief, which hopefully translates into improved consumer confidence,” said Dyer.
“Currently inflation is well within the 3% to 6% target range and this, coupled with the recent Rand strength, we expect will result in the Reserve Bank dropping interest rates further during the course of 2020.”
Despite economic and political uncertainty, local banks remained confident about the residential property market during 2019. Buyers took advantage of reduced deposit requirements, higher approval rates, historically-low interest rates and improved lending conditions.
Home loan approval rates increased, with Ooba showing a 2.4% increase in it’s approval rate from 80.4% in Q4 2018 to 82.8% in Q4 2019. Over the same period, the average deposit as a percentage of purchase price fell to 10.9%, from 12.0% in Q4 2018.
Banks continue to compete for new customers by approving finance at good interest rates, Dyer said. Ooba’s statistics for Q4 2019 show that the average interest rate was 13 basis points lower year-on-year.
“We envisage that local banks will continue to offer favourable mortgage finance terms during 2020, similar to levels experienced in 2019,” said Dyer.
“Banks are also increasingly granting loans of 100% and more of the purchase price to all home-buyers, not just first-time buyers. This will have a positive effect on liquidity in the property market and will in particular encourage more first-time buyers to enter the market.”
Dyer believes first-time buyers will make up a greater portion of total homebuyers in 2020 as they take advantage of lower interest rates, availability of finance and relatively cheaper property prices. This will result in the lower end of the market performing better than the upper end.
The top end of the market will likely remain subdued until much better news on economic growth and consumer confidence comes through, which is unlikely to occur to any large degree during 2020, Ooba said.
Given the bumpy economic road ahead, it is advisable for property buyers to shop around for the most competitive home loan.
Article referenced from:
South Africans enter 2020 with one of the best property buyer's markets in years - and the reasons to buy are compelling.
The residential property market in SA is currently oversupplied in most areas, meaning price growth is likely to remain flat in the 4% range at best.
Sellers would therefore need to keep their asking prices market-related or risk not attracting buyer interest.
Here are 6 reasons why 2020 is a great year to buy property:
Most areas are still overstocked, so there are still plenty of excellent buys in the market.
It's a buyer's market, meaning prospective buyers can negotiate strongly.
Sellers who have been holding out may be more ready to sell.
The flat interest rate and July rate cut has contributed to low borrowing costs and favourable mortgage lending conditions. Related to the above, banks are keen to lend, and first-time buyers are finding bonds of up to 105%.
Price growth has barely kept track with inflation and will likely remain flat for some time, which means buyers can find homes at "last year's prices". However, property does generally appreciate in value, meaning prospective homeowners can start small and renovate or customise to suit their needs.
Homeowners can earn income from their properties by house sharing or renting out a room, flat, or cottage, or even renting out the entire property, while still retaining the asset and benefiting from the potential capital growth.
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