New builds exempt from transfer duty are currently the favoured choice for first-time property purchasers
Property buying may be continuing unabated through the economic slump, but the market is not opening up to new buyers. Instead, the majority of sales and purchases is being transacted by those who already own property, while aspiring first-time homeowners are faced with few choices.
Their best options currently are new properties that are exempt from transfer duty. “First-time buyer levels have certainly slowed with cautiousness in the market. However, well-priced newbuild properties still remain popular due to the saving of transfer duty,” says Richard Hardie, chief executive of Knight Frank SA residential.
Buyers are also watching the market “soften” and are waiting for the right time to make an offer before the market “inevitably rises again”. First-time buyers may only start entering the market following an interest-rate cut, Hardie says. “In line with my predictions, I feel first-time buyers are likely to become more active in Q1 2019.”
First-time buyers would, however, do well to enter the market now, says Mike Greeff, chief executive of Greeff Christie’s International Real Estate. “Currently it is a buyer’s market and a good time for first-time buyers to get into the market, before it moves again and prices start increasing.” Greeff says usually there is an increase in first-time buyers at the beginning of the year.
This is a result of buyers having received bonuses at the end of the previous year which they put down as deposits. He says the agency is seeing a “noticeable increase” in these buyers as they are “taking advantage of the current stable interest rates and good buying market conditions, which see prices declining”.
Repeat home buyers are currently the “mainstay of the residential property market”, concurs bond originator BetterBond. These buyers account for 55% of new bond applications and 66% of formally granted home loans, according to company’s latest statistics. In the first three month of this year, FNB’s Estate Agent Survey revealed that 18% of people cited “economic stress and general pessimism” as a key factor in the market. By the July to September quarter though, this figure rose to 77%, says FNB’s John Loos.
It is not only a recessionary economy making some households more cautious in their spending but also concerns around the longer-term political and policy future. Such sentiment is likely to slow the rate of entry into the home ownership market and see more aspirant first-time buyers staying in the rental market for longer.
It could also encourage a greater portion of home sellers to opt for the rental market, Loos says. “The Q3 survey returned an 18.3% first-time buyer estimate, down from the 20.03% estimate in the previous quarter.
Furthermore, recent quarter’s estimates are well down on the 28% peak reached early in 2014, and the smoothed trend line remains on a downward path. “Therefore, the evidence does suggest a gradually rising portion of aspirant first-time buyers holding off on buying, compared to the trend four years ago.”
Sales figures reflect tough times
Comparing the numbers of repeat buyers versus first-time buyers from 2014 to 2018, Lightstone data shows 403 048 properties were purchased by new homeowners. Properties purchased by repeat buyers total 455 931. Looking at the 2018 statistics, it is clear times have been tough during the past few months.
Properties bought by first-time buyers in the Western Cape, Gauteng and KwaZulu-Natal total 49 100, compared to: 69 655 in 2014; 70 411 in 2015; 69 703 in 2016; and 69 618 in 2017. To date this year, 51 755 properties in these three provinces were sold to repeat buyers.
Properties sold to repeat buyers in previous years total: 80 975, in 2014 83 794. Lightstone records statistics from the three provinces: Properties sold to first-time buyers in 2018 so far: Gauteng 26 553; Western Cape 15 451; KwaZulu-Natal 7 096. Properties sold to repeat buyers in 2018 so far: Gauteng 26 734; Western Cape 17 122; KwaZulu-Natal 7 899.
Bonds granted mostly under R1m
Betterbond statistics, representing 25% of all residential bonds registered in the Deeds Office, show most bonds granted in August 2018 are in the R550 000 to R1 million price bracket (43%).
The least number of bonds granted were for properties under R250 000. Approximate percentages per price bracket are: less than R250 000 – 2%; R250 000 to R500 000 – 14%; R500 000 to R1m – 42.5%; R1m to R1.5m –19%; R1.5m to R2.5m – 15.5%; more than R2.5m – 7%.
BetterBond’s Rudi Botha says the average deposit paid in this sector declined from R223 000 to R220 000. “This has done much to sustain home price growth, which showed a year-on-year rate of 5.2% at end-August.”
He says growth has also been facilitated by banks’ willingness to lend more, and this has caused the percentage of loans granted for amounts above R1m to rise to 41% in the past year.