SA Property Demand and Supply | Over R965bn in bonds registered in 2020

And as buyers and sellers look forward to concluding their property sale transfers, the Department of Agriculture, Land Reform and Rural Development has confirmed just how lucrative the industry has been over the past year, with some R965bn in bond amounts captured thus far.

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Unsurprisingly, the appetite for debt is slowing overall, specifically for credit cards (down 49%) and non-bank personal loans (down 29%). The Quarterly Overview of Consumer Credit Trends released by TransUnion Financial Services shows application volumes (as measured by enquiries) declined as consumer confidence remained low, with a reduced appetite for new credit reflecting increased unemployment and high levels of financial hardship. In Q3 2020, year-on-year (YoY) enquiry volumes fell by double-digits across all the major consumer lending categories.

And with the interest rates at a record low of 7%, the lowest in decades, are South Africans biting off more than they can chew when it comes to their bonds?

'Increase in average new loan amounts'

"The mortgage market showed slow balance growth and drastically reduced origination growth due to lockdown restrictions. The overall trend in rising delinquencies is a concern and has become more pronounced in recent quarters," says TransUnion.

"Home loan originations followed a similar trend as most product categories, decreasing by 62.4% YoY due to the severe lockdown restrictions enforced throughout the country in Q2 2020. However, loans that were granted during the period were at much higher values as observed by the considerable increase in average new loan amounts (46.4% YoY).

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"Mortgage balances increased marginally by 2.6% YoY. Balance growth is largely attributed to an increase in average balance per account (up 3.1% YoY). An additional factor contributing to the rise in balances is the fact that, with such low interest rates, consumers with equity in their homes would prefer to tap into that surplus if they require additional liquidity as opposed to supplement their finances with an unsecured loan.

TransUnion says account-level serious delinquency rates (3+ MIA) increased YoY by 350 bp to 7.8% in Q3 2020, marking the ninth consecutive quarter that home loan delinquencies have increased. 

"Having more than doubled in the last year, the delinquency rate on mortgages is now higher than auto loans." 

READ: Real Estate and the Economy | What can SA expect?

Carl Coetzee, CEO of BetterBond, says he expects interest rates to remain in the single digits - and probably below 8% - throughout 2021.

"The South African Reserve Bank has indicated that there will be no repo cuts in the short term, and potentially two increases of only 25 basis points in the third quarter of next year. There is still ample opportunity to make the most of the favourable lending rate - 2021 will still be a good year to bond."

BetterBond has seen an 11.7% year on year increase in bond approvals for homes of R2.5 million and R3 million, and an 11.3% increase in approvals for bonds of between R2 million and R2.5 million.

"While national house price inflation will continue to slow, there will be some growth in the lower to middle price bands, as demand increases. House price growth in the R2 million to R3 million band is strengthening, while the so-called luxury market, of R3 million upwards, will continue to be sluggish," adds Coetzee.

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"The freehold housing market, referring to properties where the buyer owns the land and the house, will continue to outperform in terms of house price growth, possibly as the lower interest rate means that buyers can now afford 30% more than they could in January, when the prime lending rate was 10%. Also, buyers are prioritising quality of life after months in lockdown, and properties that can offer a garden and space for a home office, may mean that freehold properties are more appealing."  

Regional Director and CEO of RE/MAX of Southern Africa, Adrian Goslett forecasts a mixed bag, saying the negative state of the economy is likely to lead to an increase in the number of home sales which, in turn, will keep property price appreciation pegged back.

"Our prediction is that the Southern Africa property market will continue to see these high sales volumes in 2021 for as long as interest rates remain favourable and homeowners continue to adjust their lifestyles to suit the post-lockdown world."  

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"According to our National Housing Report for Q3 2020, the median asking price of sectional titles reflected a 5% drop YoY and freehold homes reflected no growth but remained steady year-on-year.  The latest FNB House Price Index (HPI) reports annual house price growth of just 2.6% y/y in October.

"Until our economy recovers from the current pandemic, I predict that house price appreciation will remain low for 2021, reflecting a national average of roughly between 2-3% growth YoY," says Goslett.

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