Middle-market continues to drive property industry growth into 2021

The South African real estate market is most certainly one of the industries that has shined during these unprecedented times. Many industry players are still surprised at the outstanding sales performance in 2020 during Covi-19, and 2021 has started no differently from where we left off in 2020.

READ: Law of Diminishing Returns | SA house prices expected to 'decline by 6% in 2021' 

Shaun Rademeyer CEO of Multinet Home Loans says they have seen over a 50% increase in submission volumes in January 2021 in comparison to January 2020. “What is more interesting to see is that the middle market has been the catalyst o the growth” says Rademeyer.

In 2019 over 50% of all applications processed ranged in the price bracket of between R250 000 and R750 000. However, over the past several months there has been a shift with much higher volumes being processed from the price bracket of R750 000 and above. This higher value market now equates to 55% of all applications compared to the 49% in 2019.

“The increase in volumes in the higher end of the market has most certainly been attributed to the low interest rate cycle we find ourselves in” Rademeyer says. 

Property Market recovers to pre-lockdown levels 

There has been a remarkable recovery following the Deeds Office closure that occurred in the second quarter of 2020 and reflects nearly the same levels of activity as it had pre-pandemic, adds Regional Director and CEO of RE/MAX of Southern Africa, Adrian Goslett.

A total of 44,885 bond registrations were recorded at the Deeds Office over the period of October to December 2020. Gosling says the RE/MAX National Housing Report for 2020 Q4 reveals that this figure is less than 80 registrations shy from the number of bonds that were registered in Q4 2019 and is a considerable correction on the mere 5,792 bond registrations that occurred during the hard lockdown in Q2 2020.

"Beyond this, the number of transfers (both bonded and unbonded) recorded at the Deeds Office between October to December amounted to 61,749*. This amount is just 2% lower than the number of transfers recorded in Q4 2019 and is a massive improvement on Q2’s dismal 3,869 transfers. Compared to Q3 2020, the figure grew by 28%.

"Of the 61,749 transfers, a total of 30,167* freehold properties and 16,288* sectional title units were sold countrywide (these figures exclude estates, farms, and land only transfers). The number of freehold properties registered decreased by a mere 1% YoY, increasing by 22% QoQ and showing a near full recovery from the 3,869 that were recorded in Q2 2020. Sectional titles showed an even faster recovery from the 1,105 registered sales in Q2 2020. The figure increased by 2% YoY and 28% QoQ.

Shifts in Market Segment Performance

The RE/MAX National Housing Report also shows that historically, sales below R400,000 accounted for the largest portion of all transfers. 

However, this quarter reflected an interesting change: sales priced between R800,000 and R1,5 million now account for the largest portion at 28%* of all transfers occurring in Q4 2020. Coming in behind this figure were transactions between R400,000-R800,000 which make up 24.5%* of the total transfers. This is followed by sales priced below R400,000 which now account for just 22.9%* of all transfers in Q4. Sales between R1,5 million to R3 million accounted for 19%* and those priced above R3 million account for 5.6%* of the total transfers this quarter.

When reviewing each market segment in isolation, the number of transfers between R1,5 million to R3 million has grown the most by 33% on the figures from Q4 2019. This is followed by the number of transfers that occurred above the R3 million price point, growing by 15% YoY; transfers between R800,000 - R1,5 million grew by 14% YoY.

Showing a decrease in the number of transfers when compared to Q4 2019, sales below R400,000 dropped by 31% YoY and those between R400,000-R800,000 shrunk by 7% YoY.

"From our numbers, it appears that many of the higher LSM consumers are entering the market of purchasing a much larger property, with the ability to negotiate a lower purchase price and the banks continuing their favourable lending environment. There has never been a better time to upscale; what we have also noticed is that many young professionals are no longer sitting on the fence of renting vs. buying a property; many have now decided to invest in property at what seems to be the best buying opportunity”, says Rademeyer

Rademeyer also adds that even though the banks have most certainly taken a more cautious approach to approving consumers for home loans we are still seeing a highly competitive environment for consumers that qualify for credit. In 2018 the loan requested to purchase value was at 94.03%. In 2020 this number decreased to 93.37% which indicates that the consumer who are currently purchasing have a slightly higher deposit vs 2018. The average loan offered to purchase price has also increase from 89.93% in 2018 to 91% in 2020 confirming the competitiveness between the lending institutions.

Looking forward Rademeyer believes that we will continue seeing consumers taking advantage of the low interest rate cycle, and as more properties become available due to hard economic times more consumers will take the opportunity to enter the property market.      

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"In general, the increase in sales after lockdown in the metropolitan areas largely occurred within the middle- to lower-income markets: areas where people who rented before could now afford to buy. This in part explains why the R800,000 - R1,5 million market made up the largest proportion of transfers. Across the country there has also been an upsurge in the number of enquiries made by those who are searching to relocate to the coast now that they are able to work remotely, which could possibly explain why there was an increase in the number of transfers that occurred over the R1.5 million price point,” says Goslett.

“Despite the renewed activity and unprecedented recovery the South African property market has enjoyed in 2020, I predict that house price appreciation will remain low for 2021 as a result of the financial pressure many households will feel owing to ongoing economic challenges brought about by the pandemic. That being said, the 2021 market presents as many opportunities as it does challenges. Those who can afford to invest in real estate now will stand to make substantial long-term returns on their investment.”