The great homebuying reset

Published June 2024

Four years on from the first lockdown, where and why we buy, and what we want from a home have changed. BetterBond takes a look at what the new normal might mean for homebuying in the South African property market. 

After heading to the polls for the country’s sixth democratic national and provincial election since 1994, there’s been an overwhelming sense that a shift is imminent. Naturally, homeowners and prospective buyers wonder what the results may mean for homebuying in the property market. Lightstone provides some reassurance with the posit that average property prices and registration volumes tend to drop during an election, but usually rebound within the following year. Economic factors such as inflation and interest rates generally have a far greater impact on property sales than elections. 

However, these elections were held at a time of considerable global uncertainty. Geopolitical tensions, most notably in the east of Europe and the Middle East, have compounded inflationary pressures around the world. In South Africa, the impact of these tensions has been exacerbated by high interest rates, widespread unemployment and elevated living costs. 

But, much like the Springboks who recently showed once again how to turn adversity into victory, South Africa’s property market has repeatedly proven its resilience. Just four years ago, the world shut down in response to the Covid-19 pandemic and everyone anticipated a catastrophic property market collapse. 

Yes, there were challenges, these included the closing of Deeds Offices that resulted in a backlog of transfers and many households faced the terrifying prospect of reduced income or even redundancy. But there were also surprising opportunities that not only saw the housing market rebound during this period but it boomed. 

Lessons from the pandemic

A combination of factors, including the dropping of the interest rate to a 50-year low and pent-up demand for homes, contributed to an unexpected property boom that saw house price inflation increase to 4.6% by the end of 2021, according to Lightstone. First-time buyers enjoyed a golden window of opportunity to buy their dream homes with the interest rate at a record low. By July 2020, BetterBond reported that first-time buyers accounted for 70% of its bond applications. Much of the homebuying activity during that time was at the lower end of the market, with an increase in bonds for homes of between R500 000 and R1 million. 

The pandemic itself was an unexpected catalyst for a property market reset. Forced to work from home, homeowners and potential buyers wanted properties with space to accommodate an office. Features such as gyms and gardens, as well as access to recreational amenities in a sectional title development or luxury estate, became increasingly sought after. 

With quality of life top of mind, many moved to smaller towns near the coast or in the country. The semigration of buyers from one province or region to another – usually one with better municipal services or opportunities – intensified post-pandemic. In 2023, FNB reported that the number of semigration sales had doubled from volumes seen before the pandemic. 

Lockdown also resulted in a greater reliance on technology for consumer activities, including bond applications and property transactions. Since then, buyers are more willing to take virtual tours of properties and buy sight unseen, and many apply online for bond pre-approval to fast track the homebuying process.

Post-2024 election

Notwithstanding the demanding macro environment that has prevailed since the pandemic, Lightstone reported in March that residential property sales volumes were at their highest since the housing market crash of 2007-2008. BetterBond’s data for May showed signs of a strengthening, albeit slight, of the property market with the average home loan value for the past 12 months up 1.2%. 

Confidence in the property market only dipped slightly to 78% in the last quarter of 2023, down from 81% the previous quarter, according to Absa’s Home Owner Sentiment Index. Furthermore, half of the respondents still view property as a secure asset and 54% see it as an asset that always increases in value. Encouragingly, the number of respondents who expect the market to improve increased by two percent. 

Semigration may have slowed, but there’s a new trend that bodes well for a market rebound. There’s been a marked increase in the number of expatriates returning home and investing in property. This so-called reverse semigration is largely being driven by skilled professionals returning from countries in comparative proximity to sites of conflict or unrest, to the relative stability of their home country. Unlike the semigration wave which favoured the Western Cape and coastal destinations, these returning buyers are settling in the economic hub of Gauteng.

Although sustained high interest rates have diminished buying power at the lower end of the market, with Lightstone reporting that transaction volumes in the below R500 000 band have dropped from 43% in 2018 to 31% in 2022, this is likely to reverse once the monetary policy shifts. Already there’s been an increase in transaction volumes in the R1 million to R3 million price band, up from 26% eight years ago to 35%, reports Lightstone. BetterBond data also shows a brisk increase in the number of bonds for homes of upwards of R2.5 million. The number of home loans granted in April was 20% higher than a year ago. 

We see further evidence of the property market’s resilience in the ongoing upward trend for average home prices. For the 12 months ended April 2024, BetterBond’s data shows that the average home price for all buyers increased by 4.5% and for first-time buyers by 3.3%. BetterBond is optimistic that a relaxation of the monetary policy, hopefully to be announced during 2024, will have a positive impact on average home prices. 

In a rapidly evolving world where change is inevitable and trends are cyclical, we take comfort in knowing that the property market has proven its resilience time and again – even in the face of a pandemic. As always, it’s important to weather the storms, and to turn the inevitable headwinds into tailwinds.