The pandemic has given a big boost to second-home ownership in South Africa

The increasing trend towards owning a second property is being driven by middleand high-income earners “taking advantage of low borrowing costs and wellpriced properties”, says Praven Subbramoney, CEO of Private Bank Lending at FNB.

Data published by FNB on Tuesday showed that the commercial bank saw a 46% increase in buyers who purchased a second property in the fourth quarter of 2020, compared to the fourth quarter of 2019.

The housing market has emerged as a bright spot in South Africa’s fragile economy, with industry players reporting an unexpected boom in property purchases on the back of interest rates close to a 50-year low.

The South African Reserve Bank’s decision to cut interest rates by three percentage points in 2020 brought the bank’s prime lending rate to 7%, making home ownership more affordable and resulting in a flood of first-time homebuyers.

Lower interest rates also led more existing homeowners into buying second houses. In other words, an increasing number of existing homeowners now own more than one property, either for investment purposes (to rent out and generate regular income), to own as a holiday home, or for other reasons.

Commercial banks have been willing to approve home loan applications during the lockdown and the pandemic.

According to FNB and Standard Bank (South Africa’s largest home loan provider), 2020 saw the highest volume of mortgage approvals in South Africa in more than a decade.

Other industry players are also reporting higher home-buying activity.

Seeff Property Group chair Samuel Seeff said overall sales at his firm (including sales at Seeff International branches, agricultural sales, and others) reached R1.75-billion in March 2021 alone – the highest value of sales in Seeff’s 57-year history.

Regarding second property purchases, Seeff said the lockdown had prompted many consumers to purchase properties for vacation purposes in South Africa’s traditional holiday towns.

“People are wanting to move to better lifestyles. People have learnt that business and work can be done from anywhere, considering improvements in technology. People are looking to move out of cities or densely populated areas to find an opportunity to live on the coast. We have seen a fair amount of movement there,” Seeff told DM168.

Andrew Golding, CEO of Pam Golding Property Group, agreed with Seeff.

“Many of these homeowners may have begun the process of acquiring a home in destinations different from their former place of primary residence, including in socalled Zoom towns, where they can work from home in a more desirable environment, sometimes even before the sale of their primary residence has been concluded.

“Alternatively, they may have decided to hold on to their existing property and rent it out, while enjoying favourable interest rates either by remortgaging their primary house or taking out a mortgage on the new property, or even paying cash,” said Golding.

“Zoom towns” or traditional holiday towns include Knysna and Plettenberg Bay along the Garden Route, Kenton and Port Alfred in the Eastern Cape, and other villages such as Rooi Els, Pringle Bay, Betty’s Bay, Kleinmond, Malmesbury, Hermanus, Onrus and Gansbaai.

“Buyers see these and a variety of other towns around the country as possible permanent residential locations as they are able to work remotely. As a result, we find more younger buyers, mainly families, relocating as a lifestyle choice,” said Golding.

Buying a second property, in order to let it out, might not be that lucrative, given consumer affordability problems that limit the ability of landlords to pass on rental increases. According to data and analytics at PayProp, rental rates across South Africa dropped from 3.2% in the first quarter (Q1) of 2020 to 1.6% in Q2, 1.5% in Q3, and just 0.2% in Q4. In rand terms, the average monthly rent increased from R7,844 in Q4 2019 to R7,854 in Q4 2020 – an increase of just R10 per month over the year.

Asked if secondary property purchases will continue well into 2021, Seeff said it would depend on whether interest rates remained low. He believes that the Reserve Bank should cut interest rates further to stimulate an economy that is still recovering from the lockdown.

Seeff said South Africa has up to eight million middle- to high-income earners who could potentially afford to purchase a secondary property 10 years after entering the primary property market.

“This means that there should roughly be 700,000 to 800,000 transactions per year. At the moment, there are 20,000 transactions per month, which is 240,000 a year. Lower interest rates could boost property transactions, even in the secondary market,” he said.