Affordable Housing Market Vibrant - 37% Selling To Upgrade

The traditional housing market is struggling for growth, but a first insight into affordable housing reveals a vibrant market segment.

South Africa's first affordable house market index, released yesterday, shows that properties in the "gap market" (priced between R250 000 and R500 000) have been more resilient and generated the most activity in the third quarter compared with the rest of the residential market.

FNB's Affordable Housing Insights provides a first in-depth view of the affordable housing market, versus the traditional market.

Top real estate agencies in Gauteng, Western Cape, Eastern Cape and KwaZulu-Natal were surveyed.

Siphamandla Mkhwanazi, a senior economist at the bank, said the findings showed that lower price segments attracted strong interest from prospective home-owners in the third quarter.

On average, a property in the affordable housing space stayed on the market for about 6 weeks with 13 average viewers per show before it is sold.

In the conventional market, there were an average 9.6 viewers per show, with the property spending about 16 weeks on the market before a sale.

Properties priced between R250 000 and R500 000 scored 16 viewers per show, and a duration of five weeks and six days on the market."

One in three properties in the affordable housing segment sell below the initial asking price, at an average 12.7 percent discount.

More than 95 percent of properties in the higher end sell below asking price, at 10 percent discount.

Some 5 percent of properties in the affordable housing segment sell above asking price, further implying strong levels of demand in the market, said Mkhwanazi.

FNB Home Finance chief executive Lee Mhlongo said the findings showed that prospective home buyers were looking for and finding value in affordable housing.

"We believe a better pipeline of supply, especially in the gap market, will go a long way to improving home ownership in our country.

"In our business, we offer 100 percent home financing solutions for the affordable housing market and we continue to work with developers to ensure that supply can live up to current demand."

Upgrading, either buying a bigger property or moving closer to work and/or amenities, was the most prominent reason for property disposals in the lower end, constituting about 37 percent of all sales.

Buy-to-let activity was also vibrant, with such purchases constituting an estimated 35 percent of all transactions. Once again, this was more prevalent in the R250 000 to R500 000 basket, with more than 50 percent of transactions estimated to be buy-to-let.

There were notable cases of downscaling, either due to financial pressure or life stage. Those that sell under financial strain are more likely to look for a cheaper alternative, than opt for rental.

"Estate agents in the lower price baskets are more upbeat about near-term market activity and property price growth.

"Among the reasons commonly cited, apart from seasonality, is the positive consumer sentiment and the lower interest rate environment. By contrast, agents in the higher end commonly cite consumer pessimism, pricing and affordability as factors driving market outcomes," said Mkhwanazi.

According to Carl Coetzee (CEO of Betterbond), the total number of bonds actually granted was a whopping 19,2% up in the 12 months to end-September compared to the previous 12 months.

And an increasing percentage of those home loan grants are going to first-time buyers, which is an indication that the overall size of the real estate market in SA is growing. The BetterBond statistics show that 38,3% of bond grants went to first-time buyers in the 12 months to end-September, compared to 32,6% in the previous 12 months.

This aligns with figures that show significant increases in the percentages of bonds being granted in the lower price categories usually favoured by first-time buyers, the most notable being a 6,3% increase year-on-year in the percentage of bonds granted for homes priced at between R1m and R1,5m.

Nevertheless, he notes, the biggest percentage (44%) of bonds granted in the 12 months to end-September was for homes priced at between R500 000 and R1m. By contrast, only 4% of bonds granted were for homes costing more than R3m. The lower end of the market is definitely where most of the action is at the moment, and this is confirmed by the latest figures from the Reserve Bank, which show that despite the significant increase in the number of bonds granted, the overall value of outstanding mortgages has only risen by some 4,9% in the past year.

The BetterBond statistics show a 3,6% increase in the average size of bond granted - and a 5,9% increase in the average size of bond granted to first-time buyers.

"The size of deposits as a percentage of home purchase price has declined accordingly," says Coetzee, "and at the same time we have seen an increased variance in the interest rates that banks are willing to offer, with the average now being at least 0,5% per application.

"This can make a significant further difference to the affordability of the property, with a 0,5% concession on a home loan of R1m, for example, translating into annual savings of almost R4000 off the buyer's bond repayments, and more than R80 000 in interest over the 20-year life of the loan."

Affordability will be further boosted, he says, if here is another interest rate decrease in November or early next year, "and we anticipate that this will consolidate the market turnaround that has already begun and lead to higher home price increases over the next 18 to 24 months."