In July, FNB economists reported that property sales had declined and they didn’t expect the situation to improve in the near future. The second quarter of 2020 commenced with two months of lockdown for the real estate industry, and estate agents were only allowed to resume work on 1 June under Alert Level 3.
However, home buying has accelerated since June, due to pent up demand created by the lockdown as well as historically low interest rates. Recent reports from mortgage originators say the number of home loan applications has increased and several estate agencies are reporting record sales.
Rhys Dyer, ooba chief executive, says: “After extremely low business levels in April and May, we received a flood of home loan applications in June - up 51% on the figures for June 2019. This high level of activity continued into July, with volumes in July up over 60% on the same period last year.”
Agency activity
“After a long period of not being able to finalise any property transactions, we were all hopeful for a small rebound when lockdown restrictions on real estate lifted,” says Tony Clarke, managing director of the Rawson Property Group. “We didn’t expect June to be our best sales month in over three years - and the second-best sales month in the history of Rawson Property.”
Clarke acknowledges that a backlog of deals pending in May could have contributed to the flood of transactions finalised in June, but says the momentum has shown no sign of slowing.
“So far, July has been even busier than June, suggesting that the rebound is only just getting started, and the boost in activity isn’t limited to major centres,” he says.
“Rawson’s sales figures show transactions in all regions and price bands picking up proportionally. Even the luxury market – typically the first to suffer during economic and political uncertainty – shows an uptick in activity compared to averages over the last year.”
RE/MAX, too, has reported sales of R2.38 billion for July – a new record for the company, according to Adrian Goslett, regional director and chief executive of RE/MAX of Southern Africa.
Resurge in buying supports prices
In the FNB Residential Property Barometer for August, FNB Senior Economist, Siphamandla Mkhwanazi, reports that buying activity is resurging, and this is supporting prices.
According to the barometer, annual house price growth rebounded to 1.4% year on year in July, from an upwardly revised 0.7% in June and 0.6% in May. The bounce back in prices reflects the unexpectedly rapid recovery in market activity since the easing of lockdown restrictions.
“Our initial expectations were for the pandemic to have a more chilling and lingering impact on activity, with pent-up demand filtering through only later this year,” says Mkhwanazi.
“However, April and May’s house price indices were based on significantly lower volumes of mortgage transactions taking place during the national lockdown. This affected the stability of our price index, which can be seen from the unusually large revisions.
“In contrast, the volume of new mortgage applications has rebounded beyond the pre-lockdown levels, and across the price spectrum. This is also supported by the volume of buyer leads, derived from web traffic to property portals, which has risen above expectations.”
Reasons for the uptick
Mkhwanazi says the rebound in activity is due to several factors:
• The first is pent-up demand from the lockdown period, where buying decisions were taken before the lockdown started. Some of these are delayed purchases, on the back of significantly lower transfer duties announced in the February 2020 Budget, which came into effect in April this year.
• Second, the record low interest rates are incentivising tenants to buy and first-time buyers to bring forward their purchasing decisions as monthly mortgage payments have come down significantly. This means a number of sales that would otherwise have taken place some time in future are happening now, with some buyers opting to fix interest rates while they are at record lows, fearing that they might increase in the near future.
• Finally, there are early signs of behavioural shifts, as homeowners reassess their housing needs and preferences as a result of life in lockdown. Anecdotal evidence shows rising demand for bigger properties - mainly freestanding houses - notably in less crowded second-tier cities. The increase in the number of people working from home is creating demand for bigger homes with additional features such as home offices and gyms, and environments conducive to home-schooling.
Near term prospects
Looking ahead, the FNB property barometer expects that historically low interest rates and lower transfer duties - particularly in the middle-priced segment - will continue to support activity in the very near term - and by extension, house prices.
“However, there is still a great deal of uncertainty around the lasting impact of the pandemic. In particular, our expectation of a significant weakening in labour market conditions implies a greater downward pressure on house prices in the medium term,” says Mkhwanazi.
“This means that, while a V-shape recovery is apparent in the data, labour market headwinds could have a more chilling effect ahead, leading to another drop in activity and thus a likely W-shape recovery. In our view, the current pent-up demand will probably not be sustained, and is unlikely to replace the demand lost due to very weak labour market outcomes.”
