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South Africa’s Property Market still offering Opportunities Despite Economic Pressure say ooba home loans
South African consumers may be feeling the pinch following a further two interest rate hikes in the first quarter of 2023, but ooba Home Loan’s Q1 2023 oobarometer indicates that there are still opportunities in the property market.
The latest data released by the country’s leading home loan comparison service indicates that homebuyers continue to take advantage of the competitive lending environment and attractive interest rate discounts offered by the country’s major banks.
Rhys Dyer, CEO of ooba Home Loans elaborates: “With interest rates now close to peaking, growth in property prices remaining subdued relative to household earnings and the continued willingness of banks to extend credit to homeowners, conditions remain favourable for those with a long-term view to property purchase.
Salaries growth outpaces house price inflation The nine consecutive interest rate hikes since late 2021 have resulted in monthly bond repayments – as a percentage of gross income – rising from a low of 18.3% in Q3’21 to a high of 20.2% in Q1’23.
At a national level, gross earnings have risen at a faster pace than house prices. According to StatsSA, average monthly earnings have risen by 22.6% between Q1’19 and Q1’23 while the average purchase price of homes has risen by 16.1%.
Property buying activity is robust at the middle to the higher end of the market 60% of finally granted bonds in Q1’23 fell into the price segment above R1.5m, up on the 58% recorded in Q1 ‘22, while properties in the price range above R750,000 to R1.5 million account for 30% - compared to the 31% recorded in Q1 ‘22. 10% of finally granted bonds in Q1 23 fell into the price category below R750,000, down 1% on Q1 ‘22. “Despite the accelerated pace of interest rate hiking since November ’21 there has been no significant shift yet towards the lower purchase price segments” notes Dyer.
Western Cape driving the buy-to-rent boom Applications for buy-to-rent properties have risen nationally in recent years, now accounting for 8.3% of the applications received nationally in Q1’23. “Initially triggered by the low interest rate environment and increased demand for rental and student properties, this is the highest percentage of home loan applications that we have received since late 2009.”
When looking at regional trends it is clear that demand for investment and buy-to-rent properties is primarily driven by the Western Cape, where applications have risen to 22.8% in Q1’23 – exceeding the pre-Covid high of 21.5% in Q1’20. “This is presumably attributable to the current wave of semigration to the Western Cape as well as the view that Western Cape property properties are generating stronger rental yields,” adds Dyer.
Deposits trending upwards A 11.9% year-on-year increase now pins the average home loan deposit at a sizeable R107 268 (Q1 ’23) - averaging 7.5% of the total purchase price. “Savvy homebuyers continue to prioritise deposits to help bring down their monthly repayments and secure the best interest rate in a tough economy.”
Q1 ’23 statistics for first-time homebuyers also reveal an average deposit of R109 793 (9.7% of the purchase price), marking a whopping 44.8% year-on-year increase and a 10.2% increase from Q4 ‘22.
“We are pleased to see this market segment embracing deposits as a sign of smart financial planning,” adds Dyer.
Attractive prime lending rates support home-buying activity In a high-interest rate environment, achieving a lending rate below prime is an essential cost-saving tool. Luckily for homebuyers, the country’s major banks are continuing to compete for home loan market share with competitive pricing.
ooba Home Loans achieved an average interest rate of prime less 0.45% for its customers over this period - a significant improvement on the average rate achieved in Q1 ’22 of prime less 0.23%.”
Elevated bank approval rates prevail Nationally, the banks’ approval rates remain steady and ooba Home Loans achieved an 82.9% approval rate for its customers in Q1 ‘23. “This marks a 0.6% increase from Q1 ‘22 and evidence of the continued confidence by home loan lenders in the property market,” he adds.
“While a higher interest rate environment is not without its challenges, the sustained slow growth in property prices coupled with rate discounts on home loans and availability of financing means that there are still plenty of good investment opportunities to be found in South Africa’s residential property market” concludes Dyer.
If you are interested in buying, selling or renting do not hesitate to contact us Llandudno: Clare 0832522485 and Margie 0832522755 Atlantic Seaboard: Alison 0834629045 Hout Bay: Fiona 0824525715 and Arlene 0824539690
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All the best, The Cape Waterfront Team