Research Residential

Current financial environment incentivizes property owners to hold on to their assets

Residential property

In FNB’s Residential Property Barometer for March 2021 it is evident that interest rate-induced demand remains strong with internal data showing bias towards middle income segments.

The data from the FNB Estate Agents Survey and FNB’s Property Valuers database both show continued growth in demand and retreating supply with incidents of downscaling due to financial pressure remaining elevated, although lower compared to during the Global Financial Crisis.

FNB’s latest data shows these to have increased slightly in higher-income categories but moderated in lower-income categories during 2021’s first quarter.

Rental market pressures persist with vacancy rates climbing and rental escalations slowing. Anecdotal evidence shows that some of this stock is being released into the market for sale.

However, labour market weaknesses remain a major concern with latest job numbers revealing that losses have migrated to more ‘white collar’ workers.

Annual house price growth accelerates in March

The FNB HPI annual house price appreciation for March rose to 4.5% year-on-year, up from 4.2% in February, as demand continues to outperform expectations. 75% of estate agents interviewed reported ‘shrinking supply as sellers withdraw properties from the market or reluctance to put properties up for sale’. FNB’s internal demand-supply indicator, derived from the property valuer’s database, shows demand to be growing faster than supply. Low interest rates, the nature of Covid-19, and lenders’ willingness to offer financial support created an incentive for property owners to hold on to their assets, despite weak consumer fundamentals.

Insights from the FNB Estate Agents Survey Market Activity

Estate agents’ rating of activity (between 1 and 10) slipped in 2021’s first quarter to 6.81, down from 7.08 in 2020’s fourth quarter. The R1.6 million – R2.6 million price bracket rated the highest, followed by the R2.6 million – R3.6 million price range as buyers continue to take advantage of low interest rates.

Time spent on the market improved further to eight weeks and two days, down from nine weeks and four days. The improvement was across the price spectrum, with the R1.6 million to R2.6 million bracket recording the shortest time at six weeks and six days, followed by the affordable market (R3.6 million averaged eleven weeks and four days in 2021’s first quarter).

Price realisation: discount on asking prices narrowed further to 9% from 10% in 2020’s fourth quarter – the lowest since 2019’s second quarter and falls slightly below the long-term average of 10%. FNB has noticed the improved affordability (lower acquisition and repayment costs) and still strong demand offered sellers some room to negotiate: 74% of properties in 2021’s first quarter sold below initial asking price, down from 80% in 2020’s first quarter. More sellers were able to attain their asking price in 2021’s first quarter compared to a year ago, pre-pandemic.

However, this varies markedly across the price spectrum. Estate agents estimate that 87% of properties greater than R3.6 million and only 44% in the affordable market (R3.6 million bracket the lowest. Expectations of future activity include near-term activity continued moderating, with only 33% of interviewed agents expecting near-term activity to increase from current levels, down from 50% in 2020’s third quarter.

51% in the affordable market expects activity to increase from current levels, indicating relative optimism in lower-priced segments. Reasons for selling overall, includes incidents of property disposals due to financial pressure which did not worsen further, averaging 21% of transactions in 2021’s first quarter.

These, however, increased marginally across all higher-priced segments but moderated in the affordable market. Emigration incidents continue a declining trend, with agents reporting that these declined to 10% of transactions in 2021’s first quarter from 11% in 2020’s fourth quarter.

FNB continues to see significant upgrading incidents into higher-priced segments, as consumers respond to the demands of remote working and schooling. These sales accounted for approximately 16% of transactions in 2021’s first quarter, up from 13% in the previous quarter and 12% a year ago.


Data shows that lower-end prices remain strong but are decelerating which is in line with the initial impact on labour markets. FNB expects this ‘correction’ to continue as employment takes time to recover. However, the inherent stock shortages will likely keep property values afloat.

Estate agents operating in the affordable segments still see demand outstripping supply. Most of the reflation during 2020’s second half was driven by middle segments, buoyed by low interest rates as well as the demand for bigger spaces to facilitate remote work.

Partly driven by tenants switching from renting to owning, it is unlikely that there is much of this demand left. Stats SA data shows that 66 000 professionals lost their jobs in 2020’s fourth quarter which will not benefit mortgage demand. Furthermore, as pressure in the rental market intensifies, it is expected that stock will be released into the market for sale. The combination of these factors is expected to have a dampening effect on activity and eventually, price growth in the coming months.

Prices in the upper end have, over a prolonged period, adjusted lower, due to receding demand and rising incidents of selling due to emigration. Available data shows properties in the top 1% price distribution declined by an average of 5.5% in 2020. For 2021 FNB expects less negative price growth, as owners delay their selling decisions due to unfavourable selling conditions and emigration trends lower (estate agents data shows these sales to have peaked in 2019).

Overall, property prices have been unusually slow to adjust to the evidently weak consumer fundamentals. In part, this is due to the nature of the crisis, which incentivised property ownership, as well as a concerted response from lenders that smoothed the impact on housing markets.