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South Africa's affordable housing market has seen stronger activity, with properties in the R250 000 to R500 000 price ranges generating the most activity.

This “gap market” was the most resilient in Q3 2019 after a relatively muted previous quarter, states FNB’s first Affordable Housing Insights report. “We saw interesting market dynamics in Q3 2019, with findings showing lower price segments attract strong interest from prospective homeowners”, says Siphamandla Mkhwanazi, senior economist at FNB.

“On average, a property in the affordable housing space stays on the market for about six weeks with 13 average viewers per show day before it is sold. The conventional market averages 9.6 viewers and spends about 16 weeks on the market before a sale.”

He says properties priced between R250 000 and R500000 score relatively better on both measures, with 16 viewers per show day and five weeks and six days on market. Price dynamics showed about one in three properties in the affordable segment sell below the initial asking price, at an average 12.7% discount.

Mkhwanazi says more than 95% of properties in the higher end sell below asking price, at about 10% discount. He says about 5% of properties in the affordable housing segment sell above asking price, further implying strong levels of demand. Lee Mhlongo, chief executive of FNB Home Finance, says the findings affirm the bank’s view that prospective buyers are finding value in affordable housing.

“We believe a better pipeline of supply, especially within the gap market, will go a long way to improving home ownership.”

FNB’s Insights also show vibrant buy-to-let activity with such purchases constituting an estimated 35% of all transactions. Again, this is more prevalent in the gap market, with more than 50% of transactions estimated to be buy-to-let. This gives credence to the view that there is inadequate supply at appropriate price points and contributes to strong house price growth in the lower end.

Upgrading, either buying a bigger property or moving closer to work and/or amenities, was the main reason for disposals in the lower end, constituting about 37% of all sales, the report says, adding that the propensity to move closer to workplaces is unsurprising, given rising living costs and lack of affordable housing near economic opportunities.

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

This supports the view that owning a home holds high sentimental value in the lower end. While emigration and relocation-related sales remain generally low in affordable housing, the trend is more prominent in higher price segments.

Part of the emigration-related sales in the lower end could be attributed to higher income households disposing of their investment properties. Looking ahead, Mkhwanazi says estate agents in the lower price brackets are more upbeat about near-term market activity and price growth.

“Among the reasons commonly cited, apart from seasonality, is the positive consumer sentiment and the lower interest rate environment. Agents in the higher end commonly cite consumer pessimism, pricing and affordability as factors driving market outcomes.”

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