While many industries are starting to show signs of the effects caused by the coronavirus pandemic, there are some instances where consumers can take advantage of the situation – one of those is the housing market in South Africa.

The supply in the housing market had already exceeded demand before the pandemic. The strong buyers’ market means that potential buyers are given more options and negotiating powers. This trend can be seen in the selling price of houses dropping between 20% – 30% on average in the high-end and luxury markets. Mid-range property prices, those between R1.5 million to R3 million, are also starting to show price decreases of between 15% – 20% on average. 

Window of opportunity
A combination of events has created a rare window of opportunity not seen for over a decade, making purchasing conditions favourable. This opportunity has come about as a result of the combination of the below:

–    After a succession of interest rate cuts, our commercial banks’ prime lending rate is at 7.25% – the lowest it’s been in 50 years. Buyers are now faced with lower monthly loan repayments and the opportunity to live in a suburb which they might not have been able to previously;

–    Lower interest rates also create the opportunity for prospective buyers to qualify for a much larger mortgage*. For instance, a family with a gross monthly income of R25,000 can now qualify for an additional R172,000 on a home loan of R800,000 when compared to January;

–    Transfer duty has decreased across the board and banks are competing for business in the favourable lending climate;

–    The widespread job and income losses are forcing many homeowners to sell as they can’t afford their mortgage payments anymore. This has led to an increase in supply on the market where desperate sellers are now more willing to negotiate with buyers for discounts.

Visible rebound?
South Africa’s biggest mortgage originators have seen a sharp increase in loan application submissions to banks during June – indicating that homebuyers are taking advantage of the current opportunities posed by the favourable lending climate. June loan application volumes are 27% higher when compared to the pre-lockdown levels earlier this year.

Think before you act
While the current conditions may seem like perfect timing for buyers to enter the housing market, it doesn’t uphold for everyone. The first priority must still be to keep your accounts in good standing and to save as much as possible for a future deposit. 

There’s also uncertainty around how often banks will grant 100% of your home loan application value and they may increase their cash deposit requirements after taking recent bond repayment patterns into account. As an existing homeowner, it will be in your best interest to maintain repayments at the same levels as you were pre-lockdown. 

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Marnia has joined the 22seven team as a Slice and Blog writer. She’s currently gaining exposure to financial reporting and forecasting at De Beers Group, as well as pursuing the CFA designation. She has a passion for the ever-changing and hyper-competitive world of business. Continuous improvement and endless development are what interest her on a daily basis. Her love for running and the outdoors keeps growing, as nature is always constant and honest, so it is there where she finds her peace.
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