Residential Demand Conditions and Secondary Home Buying

Through 2015 to early-2016, the estimated percentage of home buying believed to be secondary property buying, i.e. holiday homes, homes for use by a relative, or buy-to-let homes, declined mildly. From a multi-year high of 14.14% of total home buying in the final quarter of 2014, the estimated percentage of secondary home buying reached a 10.84% low by the 2nd quarter of 2016, according to the FNB Estate Agent Survey.

More recently, however, from last year’s 2nd quarter low, the percentage has risen to 14.47% by the 1st quarter of 2017.

This is interesting, given a recently very “flat” economic period with very little growth and weak consumer confidence in recent years.

However, it must be borne in mind that interest rate hiking stalled a year ago, which can gradually boost confidence somewhat, and there has been talk in some circles of possible interest rate cutting, although cutting is not our core view at FNB.

In addition, the SARB and OECD Leading Business Cycle Indicators have pointed to an improved economic growth performance emerging, and perhaps this rise is starting to be reflective of that.

Secondary home buying is non-essential in nature, and as such tends to be more cyclical than primary residential demand, falling as a percentage of total buying in deteriorating economic and interest rate times and vice versa.

This mild increase in the percentage of secondary home buying may, therefore, be a reflection of recent signs of improvement in the economy going into 2017, on top of the lengthy period of no further interest rate hiking.

Which secondary home buying motives are the key drivers? Buy-to-let home buying remains as usual the major driver of secondary home demand, accounting for 9.5% of total home buying in the 1st quarter 2017 FNB Estate Agent Survey. This is slightly higher than the 8.41% of the previous quarter, and while quarter to quarter movements can be volatile, recent buy-to-let estimates have remained mildly elevated from the multi-year low of 7.52% reached in the 2nd quarter of 2016.

An increase has also come in the estimated percentage of holiday home buying.

In the 1st quarter of 2017 survey the estimated percentage of holiday home buying was 3.77% of total buying. Holiday home buying is always a smaller number than buy-to-let buying, but this percentage has risen since the multi-year low of 1.77% reached in the final quarter of 2015.

The 3rd secondary home buying category, i.e. buying a home for a family member or relative to live in, remains hovering at around 1%.

FNB also uses Deeds data transactions by individuals (“Natural Persons”) in an attempt to identify the level of secondary property ownership in the country.

As a percentage of total individually-owned properties identified, secondary properties make up an estimated 16.24% as at January 2017.

This percentage has risen very slightly from 16.2% as at January 2016, with year-on-year growth being a small but positive +0.23%, compared to a slightly negative -0.02% in January a year ago.


Due to the largely non-essential nature of secondary home buying, it is typically more cyclical than primary residential buying. A rise in the estimated percentage of secondary home buying would thus be reflective of an improving economic or interest rate period.

As with certain of our other residential demand-side data, the estimated percentage of home buying believed to be secondary home buying has increased mildly, but it remains too early to draw strong conclusions.

Nevertheless, some increase in secondary home buying can perhaps be justified by signs of an improving economy in the early stages of 2017, while interest rates stopped rising in March a year ago.

However, FNB does not expect fireworks in secondary home markets. While there certainly have been signs of economic improvement to come, South Africa’s myriad of structural economic constraints leads to expect an economic growth improvement in 2017 to not far above 1%, which would remain a mediocre number. In addition, while a shift from upward to sideways movement in interest rates in March 2016 is a positive for buyer sentiment, FNB does not anticipate rate cuts this year. And, finally, the personal effective income tax rate remains on the rise.

All in all, therefore, SA’s Household Sector is likely to remain constrained for the foreseeable future, which allows limited scope for luxuries such as holiday homes.

Read more here: Property Barometer – Demand Conditions Secondary Properties March 2017