Financial Mail - - FEATURE - Joan Muller April 2020 May 2020 June 2020

HOME LOAN AP­PLI­CA­TIONS ON THE RE­BOUND % 20 10 0 -10 -20 -30 -40 -50 -60 -70 -80

A sur­prise rally in home loan ap­pli­ca­tions sug­gests hous­ing ac­tiv­ity could re­cover sooner rather than later

SA’s big­gest mortgage orig­i­na­tors have seen a sharp re­cov­ery in home loan ap­pli­ca­tions in June, with buy­ers no doubt scram­bling to cash in on cheap bor­row­ing costs and softer house prices. Home loan ap­pli­ca­tion vol­umes sub­mit­ted to the banks via ooba are up a hefty 25% year on year since the be­gin­ning of June, when real es­tate agents were al­lowed to trade again un­der lock­down level 3. June vol­umes are also 27% ahead of March’s pre-covid lev­els, says Kay Gelden­huys, head of sales ful­fil­ment at ooba.

She at­tributes this to a com­bi­na­tion of pentup de­mand — the deeds of­fice was closed for most of the pre­vi­ous two months — to­gether with buy­ers tak­ing ad­van­tage of the low­est in­ter­est rates in decades. Since early Jan­uary, banks’ prime lend­ing rate has dropped from 10% to 7.25% fol­low­ing a se­ries of rate cuts, bring­ing prime to its low­est level in al­most 50 years.

Gelden­huys be­lieves the ex­pec­ta­tion of ad­di­tional rate cuts in the sec­ond half of the year has fur­ther spurred first-time home­buy­ers and buy-to-let in­vestors to en­ter the mar­ket.

One of the up­shots of lower in­ter­est rates — be­sides lower monthly loan re­pay­ments — is that prospec­tive buy­ers can qual­ify for a much larger mortgage. That’s es­pe­cially im­por­tant for first-time buy­ers, who of­ten strug­gle to get a foot on the prop­erty lad­der. For in­stance, a house­hold with a gross monthly in­come of R25,000 would have qual­i­fied for a home loan of about R777,000 in early Jan­uary, when prime was at 10%. The same fam­ily now qual­i­fies for an ad­di­tional R172,000 (at prime of 7.25%, as­sum­ing a 100% loan re­paid over 20 years).

Ri­val mortgage orig­i­na­tor Bet­terbond re­ports a sim­i­lar uptick in ac­tiv­ity. In the sec­ond week of June, it pro­cessed 30% more home loan ap­pli­ca­tions on a year-on-year ba­sis. Vol­umes for the first half of June rose an over­all 12%.

Bet­terbond CEO Carl Coet­zee says the re­bound sug­gests ini­tial pre­dic­tions of the pan­demic pushing the al­ready strug­gling hous­ing mar­ket into a deep and pro­longed re­ces­sion may have been overly neg­a­tive.

He says if June ap­pli­ca­tion trends con­tinue over the next few weeks, a “sub­stan­tial” re­cov­ery in the res­i­den­tial prop­erty mar­ket could be on the cards sooner than ex­pected.

Coet­zee refers to other sta­tis­tics that point to a ten­ta­tive re­bound in hous­ing ac­tiv­ity. The av­er­age loan -70% size granted by the banks in the year to June in­creased 3.45% year on year, from R946,100 to R978,750. At the same time, he says, the av­er­age pur­chase price rose 0.31%, from R1,153,499 to R1,157,110.

“Again, this sug­gests that house prices have held steady, de­spite the lock­down re­stric­tions, which sup­pressed mar­ket ac­tiv­ity for sev­eral weeks,” he says.

Though ap­pli­ca­tion vol­umes may be up sub­stan­tially, the key ques­tion is how ea­ger banks will be to ap­prove loans over the com­ing months, given uncer­tainty about the pan­demic’s ef­fect on un­em­ploy­ment and house­holds’ abil­ity to re­pay their debt. The is­sue is par­tic­u­larly rel­e­vant in light of the Bank­ing As­so­ci­a­tion SA’S lat­est es­ti­mate that more than R300bn on banks’ loan books is re­port­edly at risk of de­fault, with mortgage loans ac­count­ing for 59% of that.

Gelden­huys con­cedes that banks are adopt­ing more cau­tious lend­ing prac­tices. How­ever, she says ooba’s June ap­proval rates are trending only five per­cent­age points lower than pre-covid lev­els, which were at a 12-year high of 83% in the first quar­ter. That means 78% of home­buy­ers who ap­plied for fi­nance through ooba in June still se­cured a loan. -30% 12%

But banks may be in­clined to in­crease their cash de­posit re­quire­ments, which stood at just less than 10% of the pur­chase price in the first quar­ter, ac­cord­ing to ooba’s fig­ures.

Gelden­huys says: “We are cau­tiously op­ti­mistic that the banks will con­tinue lend­ing, al­beit a lot more pru­dently at the higher loanto-value lev­els.”

In­dus­try play­ers will no doubt keep a close watch on mortgage lend­ing pat­terns to see if ear­lier ex­pec­ta­tions of a sharp fall in hous­ing sales can be averted. In early May, Prof Fran­cois Vir­uly, from the Univer­sity of Cape Town’s Ur­ban Real Es­tate Re­search Unit, es­ti­mated that, year on year, hous­ing sales could drop by as much as 45% in 2020.

How­ever, FNB econ­o­mist and prop­erty strate­gist John Loos be­lieves res­i­den­tial prop­erty is the one subsec­tor of the broader SA prop­erty mar­ket that is least at risk of a pan­demic-in­duced crash. In fact, he cites the rise in re­mote work­ing and peo­ple spend­ing more time in their homes as fac­tors that could sup­port hous­ing ac­tiv­ity.

“This is not to say we don’t ex­pect some no­tice­able price de­fla­tion in the res­i­den­tial mar­ket this year. But we all need to stay some­where. In fact, res­i­den­tial prop­erty and its de­sign be­come ar­guably more im­por­tant now, as­sum­ing that the re­mote work­ing trend ac­cel­er­ates,” says Loos. “Ren­o­va­tions and al­ter­ations of res­i­den­tial homes may be­come a sig­nif­i­cant trend as work­ing life­styles ad­just. Re­pur­pos­ing of sur­plus of­fice space into res­i­den­tial prop­erty in the years to come also prom­ises to be a sig­nif­i­cant theme.”

Last week, I learnt a pithy Afrikaans say­ing: “Jy krap waar dit nie jeuk nie.” A di­rect trans­la­tion would be some­thing like: “You’re scratch­ing where it doesn’t itch.” As far as I un­der­stand it, the id­iom refers to the act of ag­gra­vat­ing an itch that doesn’t ex­ist — of wor­ry­ing at a wound that isn’t re­ally there.

As you might have guessed, the per­son us­ing it was talk­ing about She Who Must Not Be Named, the DA’S Vold­ezille, who had de­cided to tell ev­ery­one that while she is out at the coal face sav­ing the world from the racism of our gov­ern­ment, her col­leagues, like Phumzile van Damme, “chill at home and en­joy the sea view”.

Quite what He­len Zille has against sea views is a mys­tery, though one de­tects a whiff of that tra­di­tional cul­tural prej­u­dice of the land­locked sub­ur­ban­ite for those who choose to live on the seaboard.

But don’t groan, dear reader. This is not an­other col­umn about the in­san­i­ties and inani­ties of the DA’S fed­eral coun­cil chair, though, like most colum­nists, I find it re­ally hard to ig­nore low-hang­ing fruit­cake. It is in­stead about the propen­sity of peo­ple to mys­te­ri­ously de­cide they ab­so­lutely have to say some­thing stupid, de­spite the fact that it’s go­ing to cause a lot of con­tro­versy that no­body re­ally needed.

The re­cent prime ex­am­ple of that is God’s Judge, chief jus­tice Mo­go­eng Mo­go­eng, who has de­cided — pos­si­bly with jus­ti­fi­ca­tion — that two books cob­bled to­gether over the cen­turies by a se­lec­tion of po­lit­i­cally driven chancers, de­ranged mys­tics and church clerks is a bet­ter ar­biter of hu­man rights is­sues than the con­sti­tu­tion­ally driven gov­ern­ment of SA.

And who among us can say he is wrong?

I mean, be­sides the 5% or so of South Africans who don’t iden­tify as re­li­gious, and the no doubt many per­turbed Chris­tians with a slightly more re­al­is­tic view of the elas­tic­ity of ex­e­ge­sis in their source ma­te­rial.

Ac­cord­ing to the chief jus­tice, the Bi­ble’s take on hu­man rights su­per­sedes that of the SA con­sti­tu­tion.

Now, there are many ways to draw very pos­i­tive mes­sages about hu­man rights from the Bi­ble, but there are also very many ways to jus­tify crimes against hu­man­ity, such as geno­cide, ho­mo­pho­bia, apartheid or Don­ald Trump. It’s not ex­actly a co­her­ently con­structed doc­u­ment, and only the con­ve­nient fic­tion of faith can al­low any­one to claim any sort of ide­o­log­i­cal ex­ac­ti­tude.

What it means: The chief jus­tice should keep his ques­tion­able views to him­self

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