Home ownership has become encouraged by ongoing low interest rates.
Many factors have led to a noticeable revival in the average South African’s confidence in – and willingness to invest in – property, says Mike van Alphen, National Manager of the Rawson Property Group’s bond origination division, Rawson Finance. But perhaps the greatest of these has been the phenomenal increase in rentals, which in urban areas have often been above 10% year-on-year and in some cases have even begun to approach 20%.
“Tenants on R8,000 to R9,000 monthly rentals, to give one example, are now saying to themselves that the same outlay could provide them with a R800,000 to R900,000 bond provided they can find a deposit of R80,000. In the circumstances it becomes illogical, indeed almost irresponsible, not to opt for home ownership.”
Although the impact has in many cases been more psychological than real, the average consumer also, says van Alphen, is moving towards property ownership because he now anticipates the inflation rate settling fairly comfortably below 6% and he expects it to remain there. This, he says, has come about largely because of the unexpectedly low oil price, which again appears to have settled for some time below US$ 50 per barrel.
“The knock-on effect of this,” says van Alphen, “is that the consumer anticipates interest rates also remaining at low levels.”
Van Alphen predicts that interest rates will not rise by more than 0,75% this year – an increase the average home buyer can contemplate without too much anxiety.
“To take a typical case, on a R800,000 bond taken out at the prime rate of 9,25%, the total increased monthly payments would be R392, a significant but possibly not a crippling amount.”
The greater willingness to invest in property, says van Alphen, has also been stimulated by a decline in household debt, which, although in his opinion is still far too high, has come down from close on 75% of household income in 2008 to 64% today.
“There are signs that consumers are at last getting their priorities right,” says van Alphen. “Evidence of this comes again in an Absa report indicating that consumer credit risk profiles have resulted in a 52 to 55% increase in debtors in good standing. Then, too, potential investors have been lured into property by reasonably satisfactory capital growth. According to Absa, year-on-year growth on small homes (80 m2 to 140 m2) averaged 9,6% in 2014, on middle segment homes (140 m2 to 220 m2) the figure was 7,4% and on large homes it was 7,7%. (It is worth noticing that the increases on new homes were significantly higher in the middle segment (3,4%) than those of existing homes, which has been confirmed by the performance figures of Rawson Developers’ new projects.)
A further encouragement to home ownership has been the growing perception, which is probably justified, says van Alphen, that the banks are slightly more lenient in assessing bond applications. For this, South Africa’s bond originators, most of whom increased their turnover by 20 to 30% in 2014, can take some credit.
“When a bond applicant works through a bond originator his chances of success are much greater. In 2014 Rawson Finance achieved a 66% acceptance rate simply because we were able to help clients sort out details and problems before approaching the banks.”
This year, says van Alphen, his division is fairly confident that they can raise their turnover by over 30%.