Property market really needs a rate cut
Growth in the real estate market is now in danger of stagnating without an interest rate decrease or other deliberate intervention.
That’s the word from Rudi Botha, Chairman of BetterBond, and SA’s biggest mortgage originator, who says that although overall market activity has increased over the past 12 months, expansion has been limited because the number of new entrants has been dropping steadily.
“Our statistics show clearly that most of the current demand for both properties and new mortgage finance is being generated by existing homeowners who have, for one reason or another, decided to move or to acquire additional properties – and that something needs to be done to stimulate first-time buying and bring more ‘new blood’ into the market.”
The BetterBond statistics, which represent 25% of all bonds registered in the Deeds Office and cover home loan applications made to all of the country’s major banks, show that in the 12 months of end-May, home loan applications by first-time buyers accounted for 37,5% of the total number of applications, compared to 40,3% in the previous 12 months.
“And the declining trend has speeded up in recent months, with first-time buyer applications accounting for only 33% of the total in the past three months compared to 34,5% in the previous three months.”
The most likely reasons for this decline, Botha says, are also to be found in the BetterBond figures, which show that:
- The average first-time buyer house price increased from R598 000 in April 2012 to R685 000 in April this year – a year-on-year jump of 14,5%;
- The percentage of full or 100% home loans being granted by the banks fell from 38,5% of applications in April 2012 to 34,9% in April this year;
- The average percentage of the home purchase price that first-time buyers are required to pay as a deposit rose from 10,7% in April 2012 to 14,3% in April this year.
“These factors have clearly lowered the affordability of home ownership for first-time buyers, and when one adds the rising costs of household essentials such as food, transport and utilities into the equation, it is really not surprising that their numbers are dropping.”
“Essentially, they need to be able to save a substantial deposit, and in order to do that they need to be able to lower their household debt levels. But given the fact that wage increases are currently just about keeping up with inflation that is unlikely to happen unless interest rates are now dropped even further.”
“Such a move would also stimulate economic growth and help to create new jobs, which would of course also be a positive move with regard to expanding the property market.”