• Annual house price growth increased to 1.4% year-on-year in July, from 0.7% in June and 0.6% in May, according to the FNB Residential Property Barometer.
• The rapid recovery came as a surprise, according to an economist. 
• It reflects the low interest rate environment, which is enticing renters and first-time buyers.

Annual house price growth increased to 1.4% year-on-year in July, from 0.7% in June and 0.6% in May, according to the latest FNB Residential Property Barometer.

It reflects an unexpectedly rapid recovery in market activity since the easing of lockdown restrictions.

In the view of Samuel Seeff, chair of the Seeff Property Group, despite the significant use of technology, it was only really when agents were permitted to assist purchasers with physical viewing and negotiation that the market started moving again.

The FNB barometer shows the volume of new mortgage applications has rebounded beyond pre-lockdown levels and across the price spectrum. The volume of buyer leads, derived from web traffic to property portals, has also risen above expectations.

"This rapid recovery was a bit of a surprise as we expected it only later in the year," FNB senior economist, Siphamandla Mkhwanazi, told Fin24 on Thursday.

It reflects the low interest rate environment, which is enticing renters and first-time buyers. Furthermore, those who waited for lower transfer duties (announced in the February 2020 Budget) to kick in, were "prevented" from buying when lockdown level 5 suddenly kicked in and are now active on the market.

Many first-time buyers are so-called "front loading" - in other words, they actually planned to buy only at the end of the year, but due to current low interest rates they want to lock it in now before it perhaps go up again.

Behavioural shifts

According to Mkhwanazi, there are early signs of "behavioural shifts", as homeowners reassess their housing needs and preferences as a result of life in lockdown.

Anecdotal evidence indicates rising demand for bigger properties -mainly freestanding homes - notably in less crowded "second-tier" cities like Kimberley, Bloemfontein and Port Elizabeth.

"In these towns there is still more value for money. Families can buy bigger properties as many now want to create space for home gyms, work-from-home offices and even areas to school their children," says Mkhwanazi.

Berry Everitt, CEO of the Chas Everitt International property group, agrees that, with more people working from home for at least part of the time now, the demand for properties with a study or home-office space has increased.

He says there is also a demand for well-priced smaller properties – especially among first-time buyers who are keen to move to established suburbs close to good schools and workplaces.

Furthermore, busy young executives and professionals seek smaller homes in upmarket suburbs so that they can enjoy the advantages of living in such areas without maintenance or security becoming too much of a burden.

In addition, there are many retirees who don't want to leave a familiar area but would like to downsize from a large family home to a smaller property that is easier to manage.

The global "cocooning" at home trend, enabled by technology, has been accelerated by Covid-19, which forced people to spend more time at home, says Dawn Bloch, area specialist for Lew Geffen Sotheby's International Realty in Zwaanswyk, Lakeside and Kirstenhof.

"Whilst there will always be a market for well-priced fixer-uppers, most buyers at the moment are looking for move-in ready properties that offer the option to work from home and are fibre-ready for instant connectivity," she says.

Joff van Reenen, lead auctioneer and director of High Street Auctions, says in the past three months they have seen an increase in enquiries about rural homes being auctioning.

Yael Geffen, CEO of Lew Geffen Sotheby's International Realty says they have already seen this trend in South Africa pre-Covid, with a growing number of people moving away from main metros due to affordability, traffic congestion, crime and quality of life. He expects this trend to accelerate in the wake of the pandemic.

Uncertainty remains

Mkhwanazi says there is still a lot of uncertainty due to the pandemic and its impact on the labour market. This could impact future house price growth, especially in the medium-term.

"We think a second wave of job losses could come and then [property market] activity will dip again, like when lockdown was announced, perhaps creating, over time, more of a W-shape recovery path," says Mkhwanazi.

The FNB Market Strength Index suggests that supply remains stronger than demand, while the overall level of supply appears to be moving sideways.

"Much of the retreat in supply came from higher price categories, presumably as sellers reassess their decisions amid a challenging macroeconomic environment. Homeowners are weighing selling versus refinancing - given the historically low interest rates - and this appears to be supporting prices," says Mkhwanazi.

The average difference between the final sale price and sellers' initial asking price was estimated at 12% in the second quarter of 2020, relatively unchanged from 13% in the first quarter.

Dr Andrew Golding, chief executive of the Pam Golding Property group, cautions there has not seen a significant increase in new mandates coming onto the market.

"People, including investors, have realised that now is the time to buy. We are currently seeing in the residential property market that the main price bands experiencing the most interest and activity are firstly those up to R2.5 million and R3 million, as well as the middle market price band between R3 million and R8 million, and upwards," says Golding.

Loans

Grant Smee, managing director of Only Realty, says recent statistics show a sharp increase in applications for 100% home loans. Research from home loan originator ooba, reveals that first-time buyers increased by 12% in the month of June alone. The average age of these millennial first-time buyers is 34. The majority of homes purchased during this uptick have been priced between the R700 000 and R2 million mark.

Smee suggests that a good rule of thumb is not to spend more than 30% your nett salary on housing each month in order to ensure that you have enough budget to pay for other living expenses as well as save for unforeseen costs.

Leadhome CEO Marcél du Toit says bond originators Bondspark sees an emerging trend of banks being "slightly more bullish in offering more attractive home loan packages. "

"While banks are still doing comprehensive due diligence around affordability by consumers, there is strong competition between banks to grant home loans, especially to people with good credit records," says Du Toit.