Approach property market upswing with caution

Bondspark chief executive, Marcel du Toit.

Despite the recent SA Reserve Bank interest rate cut, increased home loan applications on the back of attractive banking offers and intensified bargain hunting opportunities, Bondspark chief executive, Marcel du Toit, warns that consumers need to remain conservative when considering whether to buy or sell property.

He says there are several reasons behind the overall improvement of the local property sector this quarter.

“Last month’s rate cut by the SARB by 25 basis points to 6,5% was one of the biggest influencers, bringing a much-needed reprieve for existing and new home owners. This was met with innovative home loan offers from local banks and an increase in ‘buy to rent’ opportunities in the mid-priced segment,” says du Toit.

“The rate cut monthly savings may seem insignificant, but it’s the long term savings that are important to note. For the average home buyer, it could mean one year less on the overall debt. This is a win and more importantly shows that we are moving in the right direction,” says du Toit.

In its August Property Barometer, FNB Economics reported a more stabilised property market following a generally slower trend in the first half of the year. Du Toit says this corresponds with Bondspark numbers: “We have noted an 18% increase in home loan applications and an estimated 82% approval rate. In addition, the market also continues to favour buyers with an increase in bargain hunting in higher priced segments.”

Du Toit says that while the upswing is positive, there are sobering reasons behind this increased activity. Houses in the luxury segment, typically valued at over R3,6m are being sold below the initial listing prices.

“An estimated 14% reduction against the listing price and a resulting slightly faster sales cycle of 19 weeks, proves the bargain hunting theory, but also the state of the market. This, in turn, has provided significant opportunity for middle-income first-time buyers, as well as those looking for property investments.”

Local banks are also targeting buyers with several attractive home loan options. On the back of a very slow period, this could seem extremely attractive to first-time buyers, but du Toit says caution is required.

“While it is great to see increased market activity, buyers need to pay attention to the offers made and question whether it is the best approach before fully committing.”

In an effort to increase market share, local banks are becoming increasingly creative with their home loan offers, some also offering to cover the deposit as well as costs. According to Bondspark this could cost consumers in the long run and applicants must be very careful when accepting these offers.

Romy Zwiers, head of marketing at Bondspark, says: “We believe it is still more beneficial to save for a deposit. The long-term cost of a 100% bond is high because current house prices are behind the rate of inflation. By having a deposit, you will have a better chance of qualifying for a bond, your monthly home loan will be more affordable, and the interest paid will be reduced.”

She says buyers with deposits saved essentially become lower-risk borrowers for banks, which bodes well for any future financial obligations.

“There is added risk as a buyer if you don’t pay a deposit. If something unforeseen happens and you are forced into selling, the structure of your debt will greatly influence the outcome. If you are bonded to maximum there is a good possibility that you could owe more than your property is worth.”