On 26thFebruary, finance minister Tito Mboweni is expected to make some tough calls during his budget speech as he tries to raise revenue and cut public sector expenditure.
The managing director of the Rawson Property Group, Tony Clarke said that in 2020, the real estate prospects are looking positive. Over the past year, there has been an increase in housing demand, especially within the lower end of the market and the trend is expected to continue.
A contributing factor to this prospect is that inflation has declined, leading to reduced financial pressures on consumers. Also, over the past four years’ house price growth and rental increases has been slow. The rand has also shown to be quite resilient over recent months as investors have been favouring emerging markets. It is expected that the international oil prices will decline, which will hold inflation below the midpoint of the Reserve Banks target range for most of 2020.
Repo and prime interest rates also saw a decline in January by 0.25 percentage point. This has led to reduced monthly instalments on various debts including car and credit card repayments. Consumers now have the ability to afford and qualify for home loan repayments. Clarke also said that at least one additional rate cut is expected this year which should give the economy and the property market even more of a push.
Rawson finance national admin hub manager, Leonard Kondowe has noted that banks are in competition to grant new home loans, especially to those that have strong credit records. Borrowers will be in the winning position as banks are offering loans with lower deposit requirements at the best interest rates they have seen in years.
To sweeten the deal even further, there are banks which will even include costs for transfer and bond registrations in the loan, especially for loans of about R1.8 million. They may even grant loans of up to 105% loan to value. Kondowe said as an example if you are buying a R1 million property without a deposit, then your bond with transfer costs will be about R57 000, but with the extra 5%, it equals R50 000, which can then be used towards such costs.
First time buyers will then find it easier as they will not need to save up a large amount of cash to cover transfer costs as well as the deposit. Lower priced homes, sectional title apartments and townhouses will then sell, but homes in the higher priced categories will need to wait or be willing to negotiate.
The potential junk downgrade by Moody’s seems to have been factored in already to bond and equity markets according to Clarke, so the negative effect previously feared might not be as big.
Even so, Clarke said, that the government will need to make some critical moves to attract and keep more investments from private businesses and individuals so that economic growth can be sped up and hopefully make a dent in the unemployment rate.
Both Clarke and Kondowe agree that to maintain the current momentum in the market, job growth will be key because, without it, consumers will lose confidence to buy property even if they can do so. This year could then be the making or the breaking for SA’s residential property sector.
According to FNB’s House Price Index, the bank believes that long term trends will continue to be dictated by broader economic developments, especially that of employment growth.
According to Siphamandla Mkhwanazi, FNB property economist, there have been some signs of improvement in all price sectors. However, it was also noted that some sellers took their properties off the market because of poor selling conditions, which has curbed the pace of supply somewhat.
CEO of consumer first digital estate agency PropertyFox, Crispin Inglis, said in response to the lack of growth, the big banks are now open to giving 100% bonds to encourage the buying and selling in the current environment.
What are 100% Bonds?
Kevin Penwarden, CEO at SA Home Loans, said that there has been a consistent trend towards 100% bonds due to the competition between major lenders.
This means that qualifying buyers can get a loan without needing to pay a deposit and those that can afford a deposit will find that the required deposit for a loan has decreased steadily.
100% bonds can be beneficial in the short term, but there are long term risks. SA Home Loans say that they still need to lend responsibly and they pay close attention to whether applicants can afford to pay the loans over the long term whilst remaining competitive, but not at the cost of their clients.
Inglis said that we are currently in a buyer’s market, which means there are more houses for sale then there are suitable buyers. Buyers then have far more room to negotiate.
100% bonds usually have higher interest rates and if circumstances change or interest rates are hiked it can make it difficult for the consumer to pay their loan. Consumers then need to enter a home loan with their eyes open.
Article Source: https://businesstech.co.za/news/property/372962/south-african-banks-are-granting-more-home-loans-with-sweeteners/