Initial predictions regarding the future of the residential property market as a result of the Covid-19 lockdown have painted a sombre picture: significant drops in house prices, more supply than demand, and people unable to afford their home loans. 

However, it was not possible to put these predictions to the test until recently, when

South Africa moved to Alert Level 3 of lockdown regulations.

“What this means,” says Carl Coetzee, the CEO of BetterBond, “is that the first deals in a long time can be concluded. People who have viewed a property online can now view it in person and, if they are keen on it, submit an offer to purchase.”

Coetzee adds that, from mid-March to End-May, the period when the industry was essentially shut down, home loan applications continued to be submitted. “Most were, however, subject to one important condition: that the offer to purchase could only be confirmed once the potential buyer had viewed the house and decided to go ahead. Thankfully, this process can now take place.”

With the property market having opened up again, indications are that some of the direst predictions may not be coming true. There was concern about banks’ lending requirements becoming more stringent and home loan applications being turned down due to greater risk posed by an uncertain employment environment. 

‘Bank approval rate for home loans at 76%’

“In May the bank approval rate for bond applications was at 76% – which is only a slight drop from previous months.”

In addition, there are signs of recovery in terms of home loan application numbers, says Coetzee.

“In April we saw a 70% drop year on year, but in May this improved to only 30% lower year on year. And thus far in June, we have numbers more than pre-pandemic targets. This could be either pent-up demand, or low interest rates driving demand. If this trend continues during the remainder of June, we could be looking at a substantial recovery in the residential property market sooner than expected, at least with regards to activity and the granting of home loans by the banks,” says Coetzee.

CEO of MultINET Home Loans Shaun Rademeyer says, “The recent interest rate cuts have stimulated interest among buyers, as revealed by an increase in ‘buy a home’ search terms since the rate cut announcements in May.

In 2019 buyers would have needed to earn a household income of R28 951 to afford a R1 million home, now that has significantly reduced to R23 711 almost a 20% reduction in gross income.

“Even though the market is under pressure, we have unlocked a new buyer in the market, add that the house prices will not be growing it’s the best time to buy,” says Rademeyer.

BetterBond has also seen positive activity from first-time homebuyers, with 70% of applications received in May coming from this category of buyers. The approval of bonds for first-time buyers is at its highest for three years, suggesting that a good number of these applications are realistic in terms of affordability, which bodes well for their bond repayments over time. 

Coetzee says first-time buyer numbers “reflect the market’s understanding that the current scenario is the most favourable it’s been in many years for people who want to get into home-ownership. Many of them couldn’t afford it until now, but with interest rates at 50-year lows, it’s the best opportunity new buyers have had for decades, to acquire property.”

As for predictions regarding downward trends in property prices, this cannot be accurately assessed yet. More property transfers would need to go through the Deeds Offices, before figures will become available that will allow us to compare prices pre-, during and post-lockdown. 

BetterBond believes that properties under the R2.5 million mark will hold up strongly and could even experience price growth, but at the higher end we are likely to see property prices under downward pressure. 

Significantly, activity has not slowed to the extent that many had expected and is, in fact, picking up. This shows that the pandemic has brought about the expected slowdown in the property market, but that a potentially healthy recovery is on the go.