PROPERTY MARKET RECOVERY

• Bank approval rate for home loan applications at over 75%
• First-time buyers prominent among home loan applicants

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. With Level 3 of South Africa’s lockdown regulations now in place, the property industry has been able to return to work. “What this means,” says Carl Coetzee, the CEO of South Africa’s biggest bond originator, 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 first week of the property market having opened up again, indications are that some of the most dire predictions may not be coming true. “BetterBond statistics show that there continues to be interest in buying residential properties among South African consumers and, most significantly, that the banks are keen to lend to prospective buyers who are in good standing financially,” Coetzee says. “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. But the latest figures are encouraging in terms of the banks’ willingness to lend to buyers who have been through the pre-approval process that BetterBond conducts. In fact, 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. 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 in excess of pre-pandemic targets (refer to the below chart). 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,” Coetzee comments.