Cash king when buying property
Western Cape draws affluent clients
THE WESTERN Cape attracts more affluent buyers who can buy property cash as opposed to middle-income buyers who rely on mortgage finance. This is according to a recent Standard Bank survey which used the data from the deeds registry for all registered property transactions in South Africa for both cash and mortgage transactions and then estimated the volume of property transactions in the country.
The report showed that of the cash transactions last year, Gauteng accounted for 34% and the Western Cape for 31%. However, the Western Cape now has more cash than mortgage transactions, with cash transactions accounting for 56% of all transactions. The report showed that the province now attracts more affluent buyers who can buy property cash, as opposed to middle-income buyers who need mortgages.
According to the bank’s estimates, property transactions in last year’s fourth quarter were at a low last seen in the first quarter of 2010 and were also 48% below the peak of the first quarter of 2007.
“This is not surprising given high interest rates and the soft labour market. Moreover, given low consumer confidence, households have been wary of financial commitments such as purchasing a house,” the bank said. It added that the sharp increase in the share of cash purchases in 2008 and 2009 was a function of mortgage transactions declining sharply rather than the number of cash transactions increasing and also that mortgage transactions fell faster than cash transactions.
This was particularly between the fourth quarter of 2015 and the fourth quarter of last year, with mortgage transactions declining by 24.5% versus a 20% decline in cash transactions in the same period which reflects adverse labour market conditions and tighter credit conditions which limits the number of people able to access a mortgage.
It said fewer constraints applied to cash buyers.
“This situation echoes that of the financial crisis. We do not, however, expect a similar nominal decline in house prices as we experienced during the financial crisis. But we expect that the tight lending standards currently applied by lenders will hinder robust growth in property prices,” the bank said.
“We estimate that the median purchase price paid by cash buyers was 24% lower than that paid by mortgaged buyers. Further, cash buyers buy relatively bigger properties, at a lower median price per square metre than mortgaged buyers,” the bank said.
Standard Bank added that cash buyers are usually in a better bargaining position and also sellers may be more amendable to offering a discount to cash buyers in trying to expedite a transaction.