Who is buying SA’s houses?
Mortgage extension surges on a second wave of demand, as wealthy South Africans in search of bigger and betterequipped homes ‘buy up’
It’s hard to believe, but sky-high unemployment levels and stretched household balance sheets have not yet curbed home buyers’ rampant appetite for debt funding.
New credit extension data shows that mortgage lending accelerated by 7.2% in July year on year — the fastest pace in 12 years (since May 2009).
Demand for home loans has climbed steadily since mid-2020, fuelled by near 50-year low interest rates, which allowed thousands of first-time buyers to enter the market.
There were expectations that last year’s mini-boom in housing activity would cool this year, but that has yet to happen. Mortgage originator BetterBond has reported a 27% increase, year on year, in mortgage applications in August alone.
FNB economist
Siphamandla
Mkhwanazi says the rate at which mortgage extension has soared seems at odds with the weak economic indicators. However, he believes it reflects a shift in demand towards more expensive properties among well-heeled buyers.
He says SA’s housing market has been characterised by two surges. The first came last year, following the relaxation of lockdown restrictions, when pent-up demand led to a rush in transaction volumes in the lower price brackets — especially the R750,000R1.5m range. Most of the action then was driven by younger firsttime buyers, who responded to the abnormally cheap debt funding to enter the market.
In contrast, the second surge, which Mkhwanazi says began in the first quarter, has largely been driven by older, repeat buyers.
Mkhwanazi points to a 14.5%
rise in the size of the average mortgage loan processed by FNB in the 18 months to July. This, he says, suggests that wealthier South Africans are starting to trade up to more expensive homes on the back of pandemic-related shifts in the way people work, live and play.
Mkhwanazi refers to the workfrom-home trend in particular, which has supported demand for bigger and better-equipped homes.
The advent of a larger proportion of higherincome property buyers to the market in recent months is underscored not only by the steep increase in the average size of mortgage loans granted, but also by fewer applications for 100% home loans.
“That is indicative of repeat buyers, who tend to be active in higherprice segments and usually have easier access to savings to finance down payments on property purchases,” Mkhwanazi says.
FNB’s research points to the R5.5m-R7.5m price category as having been particularly active in the first half of 2021. Mkhwanazi believes this could be explained by investors who have earned improved returns on stock markets over the past 12 to 18 months and are now looking to diversify their portfolios into residential bricks and mortar.
He says disposable income among lower- and middle-income buyers could be eroded further by the recent weaker than expected labour market data, coupled with the possibility of a further rise in third-quarter unemployment figures owing to the looting and unrest in KwaZulu-Natal and Gauteng in July.
But while that is likely to curb these consumers’ enthusiasm to take on new debt to buy property, affluent households seemed to have been able to boost their finances through growth in nonwage income, such as dividends.
Estate agents also report an increase in sales in posh suburbs, particularly in coastal areas, which seem to be experiencing an uptick
in second-home buying on the back of the remote-working trend and a search for a more relaxed lifestyle.
Samuel Seeff, chair of Seeff Property Group, says confidence is returning to the upper end of the housing market despite continuing “political noise”.
Following an initial quiet period after the onset of Covid in March last year, he says, wealthy buyers are starting to take advantage of softer prices to acquire big-ticket properties with all the bells and whistles.
Many now spend more time at home and are looking for properties that will cater better for changing lifestyle needs.
Seeff refers to the area in Cape
Town that stretches from Sea Point to Camps Bay in particular, where the group has sold a number of R20m-plus mansions this year. These were bought by, among others, upcountry “semigrators”, as well as by expats, some of whom plan to spend more time working remotely from SA. Recent big-ticket deals include two Fresnaye sales, for R40m and R36m; four in Camps Bay, for R32.38m, R25.55m, R22.5m and R21.5m; one for R20.2m in Bantry Bay and a penthouse at the V&A Waterfront that fetched R45m.
Second-home buyers also recently splurged R55m in Plettenberg Bay on the Garden Route and R24.5m at the Zimbali Coastal Resort & Estate on the KwaZuluNatal north coast. Seeff says the Cape west coast has also had a strong renewal in buyer interest this year, with homes in seaside villages such as Langebaan, Paternoster and Lamberts Bay on offer in the R5m-R8m range.
Continued buoyancy in mortgage extension has pushed residential property values to fresh highs. SA house price growth reached a five-year peak of 5.1% in the second quarter, says data and analytics group Lightstone.
Some expats have bought expensive homes in order to work remotely from SA