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How has the pandemic affected building bonds?

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As the second half of the year gets into full swing, current bond movement shows substantial activity in the residential sector

Everything Property takes a look at how the pandemic has affected building bonds in South Africa.

WORDS: ATLEHANG RAMATHESELE – PHOTOS: UNSPLASH AND ISTOCK

The global pandemic and the aftermath of the varying lockdowns continues to shake up bond movement in SA in a myriad ways. With improved affordability for consumers across a range of economic brackets and brighter prospects for new entrants to the market, bond application and transaction volumes are up while the appetite of first-time buyers continues to grow. Many factors including interest rate reduction, semigration patterns, K-shaped recovery and a shift in buyer lifestyle preferences continue to sustain activity in the residential market.

What is the current market like?

According to Ewald Kellerman, chief risk officer: home loans, ABSA Retail and Business Bank, there was a reduction in bonds in March 2020 when the Deeds Office closed and property transactions came to a grinding halt. It picked up very quickly with boosted prospects for newly qualifying customers who couldn’t buy property before. “This is due to affordability conditions turning out to be quite positive,” he says. Some of the primary drivers of this new demand were the reduced interest rate and rent suddenly becoming a more expensive option. A surge in activity in the lower end of the market followed, as properties in the R500,000 to R1.5m mark covered a large portion of the market. The top end of the market was initially more reluctant to spend as the future of the economy remained uncertain, but it has since picked up. Kellerman therefore notes that affordability has improved across the board. “We are seeing that a monthly repayment of a normal bond is 25% less and allows the same customer to buy for 20% more than they would usually qualify for,” he says. He also notes a significant increase in 100% home loans for bonded properties.

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One of the consequences of this growing penchant for property is a market saturated with buyers and not enough suitable properties to meet this demand, “As of May 2021, there has been about a 5% increase in property values and it is still accelerating,” says Kellerman. Bond application and transaction volumes have been considerably high across the market. According to Kellerman, application volumes are up to 20% year on year and there has been a 13% increase of registrations at the Deeds Office year on year. This is a good indicator that market activity could be up by 20% year on year in the future. Ashwin Frankie, CEO of property analytics and data company Knowledge Factory, notes that the key trend observed in the past eight to 10 months, other than the substantial increase of activity in the residential sector, is how many young people in their 20s and early 30s are using this opportunity to enter the market. This is also reflected in the growth in the R800,000-R1.5m bond price band.

Upon analysing the data, he has seen much movement at the R1m mark, particularly in sectional title complexes in busy metros. The data also shows increased activity in the R1.5m-R8m bracket, particularly in the R3m to R6m band, as higher end consumers are also taking advantage of the lower interest rate and falling into higher price bands. The profitability of investment in property to rent (“buy to let”) remains unclear in the current market. Kellerman notes that while the rental market took strain, it is recovering and will likely just need a structural adjustment as the need for renting remains. “There is still a big demand in SA to own property and rent it out because, even with lowered interest rates, it is still not possible or practical for everybody to own property,” he explains.

Activity has also picked up in building loans, something Kellerman says can potentially be attributed to the supply and demand issues, but development of residential properties on both ends of the market is also picking up. Kellerman asserts that the change in the way we live and work due to lockdown will have a long-lasting shift in attitudes to residential property in general, especially as property location is no longer a top priority as remote working continues to be popular. People want larger gardens and upgraded office spaces. “Younger people are also moving out of the city and high-rise buildings and many more people are opting to buy in coastal areas. Typical holiday towns are even becoming business hubs with improved infrastructure and high-speed internet,”he adds. 

Building bonds

 

First-time buyer trends in a nutshell

  • R800,000- R1,5m bond price band proving to be most popular.
  • Black females account for an estimated 40% of first-time buyers in this price band.
  • Properties below R1m in sectional title complexes close to busy metros countrywide continue to garner the most interest.
  • There has been significant movement from Gauteng to Cape Town and KwaZulu-Natal as consumers chase a lifestyle change.

Source: Knowledge Factory 

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