New lending for mortgages in SA surges to an 'all-time high'

As the appetite for property investment in South Africa continues to grow for the fourth consecutive quarter, sellers appear to be waiting it out for a price-increase wave.

This is according to the latest Absa Homeowner Sentiment Index (HSI), which indicates that confidence in the South African property market has remained in line with the last quarter of Q4 2020, inching ahead 1% to end Q1 2021 at 81%.

Sentiment towards buying property has had its fourth consecutive quarter of sentiment improvement, ending Q1 2021 at 82%, the highest since the introduction of the HSI, says Absa. Sentiment towards buying rather than renting also reached the highest level since the introduction of the HSI.

Sentiment towards buying property grew faster than sentiment towards selling property for the second consecutive quarter - with positive factors including that Property is seen as a secure asset, with long-term income potential.

The impact of the Covid-19 pandemic and the poor performance of the economy are some of the negative factors cited in the survey by consumers under financial strain.

Widening gap between buyers and sellers

Absa says the rally due to the low-interest rate cycle on sentiment towards buying property has given way to property accumulating in value. This could be indicative of the anticipated price increases due to the widening gap between willing buyers and willing sellers.

"Buying sentiment, together with observed demand have been sustained since the latter part of Q2 2020. This demand has continued to be met with a mismatch in the supply of stock – initially due to would-be sellers perceiving prices to be too low to sell, but this has likely shifted to property owners wanting to ride the price increase wave to achieve better selling prices closer to the top of the cycle," says Absa.

Pricier properties as the quality of buyers hold strong

Another observed phenomenon was that of property buyers reaching for a pricier property.

"To support these purchases will be mortgage loan applications at higher LTV’s and potentially longer terms as well.

"Interestingly as well, we didn’t see a deterioration in the quality of the customer coming through the door, in fact, the quality of customer held out coming into H2 and this enabled us to keep approval rates in line with pre-lockdown levels, thus driving the surge in registrations in the second half of the year.

"Overall lending increased materially in Q4 2020 in South Africa, much of which was due to consumers taking out mortgages – and this resulted in new lending for mortgages surging to an all-time high.

"The increase would have been supported by the increase in demand for property, the shift towards more property being financed (rather than cash purchases) and higher loan-to-value deals being concluded."

Absa expects increasing property prices to be added to the mix in the coming months.

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