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Best home buying conditions in decades

In the current dire economic state the fourth rate cut this year brings welcome relief for financially stressed home-owners and with record-low interest rates sweetens the deal for first-time home buyers as well as property investors.

The latest rate cut of 50 basis points by the SA Reserve Bank will bring much needed relief in mortgage payments for financially stressed home-owners from 1 June. The SA Reserve Bank cut the repo rate by 50bps to 3.75%, the lowest the interest rate has been in decades. For investors and home-owners this means that from next month they will see a reduction of around R30.60 per R100 000 outstanding on their bond repayments – or R306 per month on a 20-year loan of R1m.

“We welcome the announcement of a further drop in the interest rate as a necessary means of stimulating the property market amidst the strain the global COVID-19 pandemic is having on the economy and on consumer confidence in general. In addition to the interest rate being at an all-time low, the threshold on transfer duty was raised earlier this year, and the fact that prevailing market conditions favour buyers, now is a great time to purchase property. The situation is particularly favourable for those looking to enter the market for the first time, granted they can afford it,” says Bruce Swain, CEO Leapfrog Property Group.

Even better news for the entire property sector was the news that all property professionals, residential estate sector included, will be able to operate fully in Alert Level 3 starting 1 June, which means they will be able to assist home buyers to take full advantage the current favourable conditions for buying a home – the best it has been in decades.

Relief for home-owners

The latest rate cut is bittersweet in the face of the developing economic crisis because of the extended national lockdown says Herschel Jawitz, CEO of Jawitz Properties. It is true that the reduction mortgage payments will give home-owners and consumers debt relief. “On a R1m home loan at the current prime rate of 7,25%, the monthly repayments have gone down from R9,400 per month to R7,900 per month, a difference of more than R1,500 or 17% per month. That’s meaningful. Especially if you consider that it’s an after-tax saving,” explains Jawitz.

This financial relief can be important in preventing the market from being flooded with properties from distressed home-owners unable to meet the monthly mortgage payment. “This means that fewer homes will be forced onto the market which lowers the possibility for a housing market crash where supply far outweighs demand and property values plummet,” adds Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa.

However, the real question is whether the rate cut will stimulate demand for property sales. Jawitz says he believes it more likely that people will use the savings gained to shield themselves from job losses and salary reductions. However, with the full real estate value chain operational from next week there is greater hope that demand for property may be stimulated.

Property developers are cautiously positive that, coupled with the re-opening of the South African deeds’ office earlier in May, more activity in the property market may be expected.

“The move by the South African Reserve Bank is likely to have favourable consequences for the retirement property market because – although most retirees don’t require home loans – many investments in retirement homes are dependent on the sale of an existing property,” explained Phil Barker of Renishaw Property Developments, developers of Renishaw Hills.

He said the changes would be welcomed by many homeowners who have been unable to invest in a retirement village because of the difficulty of selling their current home in a depressed property market. Barker acknowledged the effect of the weak economy on the market but believes that the lowest interest rates in half a century will certainly have a positive impact.

Unprecedented opportunity for first-time home buyers and investors

The latest rate cut is also good news for people who have been renting for a long time and have been wanting to enter the property market says Carl Coetzee, CEO BetterBond. “Because with rates at 50-year lows, for some the scales of their monthly budgets could be at a tipping point where it might become cheaper to buy than to rent,” he says.

Add to this the further motivation that there’s no longer any transfer duty payable on property prices up to R1 million, and there has hardly been a better time for first-time buyers to buy property, granted if they can afford it agrees Bruce Swain, CEO Leapfrog.

Samuel Seeff, chairman of the Seeff Property Group, says this last rate cut “has created an unprecedented opportunity for buyers to take advantage of the near five-decade low borrowing costs and drastically improved affordability.”

Besides the considerable saving on monthly mortgage payments, affordability has also increased drastically. “If you had purchased a R1 million property at 10%, your gross monthly income requirement was at around R33 000 per month. It has now reduced by over R5 000, a significant benefit for buyers to take advantage of the interest savings and transfer duty exemption,” he says.

Seeff says that it is especially favourable for the low to mid-market range to R1.5 million (up to R3 million in some areas) where they have seen the bulk of activity. Buyers who are financially able to buy now have more property to choose from as stock levels are higher than what they have been for some time. In the mid-range to luxury market he expects that activity will remain muted as people watch to see how the country’s economy is

He added that lending conditions also continue to remain favourable. Dr Andrew Golding, chief executive Pam Golding Property group, also points out that the muted growth in house price inflation is another positive aspect about the current favourable conditions to buy a home or invest in property. “According to mortgage originator ooba, average house prices remained steady at just over R1.2 million during the first four months of the year, while the average price of first-time buyers remains below R1 million, as they capitalise on accessibly priced homes which attract zero transfer duty,” he says.

Besides homes in the lower to mid-range, the other property market that has also continued to attract the attention of buyers and investors, despite the lockdown, is retreat-style luxury properties.

There has also been a rising interest in industrial spaces that can offer quick conversions to much-needed regional supply chain distribution hubs. These buying trends are noticed by Joff van Reenen, Director of specialist real estate auction company High Street Auctions.

“There are few safe haven investments in such volatile markets and with no global playbook for a situation such as the one in which we currently find ourselves, even in ‘the new normal’ property remains attractive,” he says.

Van Reenen says they are seeing a lot more interest from foreign investors who are eager to capitalize on the weak rand exchange rate by making long-term investments in South Africa by buying premium property at ‘bargain rates’. “In fact, this month we sold a lodge in the Mabula reserve to an American investor sight unseen, who found the property online, did the rates calculation and made the sound decision that buying it was a no-brainer,” he says.


Key to maximising the benefit of the rate cuts towards the recovery of the country’s ailing economy, will be the return of a fully functioning property system. All the property leaders are in agreement on this – it doesn’t matter much if the property buying conditions are favourable but buyers are not able to physically inspect a property before making the final decision whether they are going to purchase it or not.

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