ooba Home Loans’ Q4 2023 statistics have underpinned silver linings set to support the residential property sector’s road to recovery in 2024.
At the top of the list is the sharp and continuous uptick in buy-to-let properties, financially savvy and motivated first-time homebuyers, and the ongoing willingness of banks to offer competitive home loan deals.
CEO of ooba Group, Rhys Dyer, says that a competitive and improved average interest rate offered by the banks, now at -0.48% below prime (4 basis points lower than in Q3 2023), “sends a good signal to the market.”
“It indicates confidence by the banks and an ongoing appetite to compete for home loan market share. Here, the banks are looking to attract new-to-bank customers with additional rate concessions, and we expect this strategy to prevail throughout 2024.”
While some of the key indicators were down year-on-year, this was to be expected: “The statistics are representative of the end of a tough two years, largely defined by interest rate hikes, increased inflation, and the rising cost of living. They paint a realistic picture of the effects of a high interest rate environment on the average homebuyer.”
“However, what is good to see is that, despite national property prices coming under pressure as a symptom of the lower demand for property, South Africans’ nominal salaries are growing at a faster rate than property prices, boosting would-be homebuyers’ ability to enter the property market.”
National property prices and deposits
Unpacking property prices, Dyer points out that national property prices appear to be slowly retracting. “The average purchase price in Q4 2023 sits at R1 411 434 – down by 0.8% and 0.9% on Q4 2022 and Q3 2023 respectively.” In addition, the average approved bond size sits at R1 301 395 – up by 1.2% from Q3 2023.
The average deposit as a percentage of the purchase price has declined by 9.3% year-on-year – now at R110 039 or 7.8% of the average purchase price. However, the same cannot be said for the first-time homebuyer segment, where there has been a significant increase in the average deposit – up by 6.4% on the last quarter and up 23.7% from Q4 2022. “This shows that first-time homebuyers continue to prioritise deposits and understand the importance of savings – regardless of the climate. This statistic cannot be underestimated as it sets the tone for a potential surge in first-time homebuyers once interest rate cuts commence.”
The banks continue to vie for home loan business
The mild cooling of bank approval rates from 84.4% in Q4 2022 to 81.6% in Q4 2023 is a clear indicator of the financial stress and resultant affordability challenges that the average homebuyer is under in a high interest rate environment.
“However, what is encouraging to see is that bank approval rates have only dropped by just under 2% from the 83.5% that ooba Home Loans was securing for our homebuyers at the start of the rate hike cycle in Q4 2021,” says Dyer.
The imminent resurgence of the first-time homebuyer
The first-time homebuyer segment is re-emerging as a key driver of home loan market growth, despite a temporary slowing in this segment’s homebuyer activity.
First-time homebuyers accounted for 48% of ooba Home Loan’s application volumes in both Q3 and Q4 2023, down by 1% on the 49% recorded in Q4 2022. “This remains considerably lower than the peak of 56% recorded in May 2020 when interest rates tumbled to a historical low of 7%.”
In this category, both the average purchase price (now at R1 118 028 – up +0.4% from R1 113 157 in Q4 2022) and the average deposit size (now at R121 774 up from R98 037 in Q4 2022) are trending upwards. “This tells us that first-time homebuyers – now at an average age of 36 (up from age 35 in Q4 2022) – may be taking longer to enter the property market because they are in fact taking some extra time to save up for a decent deposit.”
Luxury homes are a hot ticket item
There has been a marked shift in the price band of R3 million-plus in Q4 2023 among non-first-time homebuyers. “Despite the climate, there is sustained and robust demand for luxury homes of R3 million or more – now accounting for more than one-third of the properties purchased,” notes Dyer.
This property price band was matched by properties in the R1.5 million to R3 million category – also at 36% among non-first-time homebuyers. “However, as the Reserve Bank begins its anticipated rate cuts in 2024, we expect the R3 million-plus price bracket to surpass the R1.5 million to R3 million price band among non-first-time homebuyers.”
A continued trend among first-time homebuyers lies in the R750 000 to R1.5 million price band.
“While there has been a marginal shift upwards in the average price paid by first-time homebuyers, the R750 000 to R1.5 million price band continues to account for the bulk of sales.”
Buy-to-let properties top the charts
Buy-to-let applications are on the up once again – now pinned at 12% for Q4 2023, up from 8% in Q4 2022. “Property is still regarded both as a sound financial investment and as a strategy to build generational wealth,” says Dyer.
Unpacking the statistics, Dyer states that ooba Home Loans’ Q4 2023 statistics show that the average investment buyer is 43 years old, has a gross monthly income of R100 000 and has an affinity for investing in sectional title properties. “Sectional title properties account for 67.4% of properties sold for investment purposes over the quarter. Sectional title properties are easier to maintain, promote a lock-up-and-go lifestyle and provide enhanced security.”
Looking to who’s buying, Dyer notes a shift from a previously male-dominated property investment market. “Female investors now account for almost 50% of buy-to-let applications processed by ooba Home Loans during 2023.”
Buy-to-let demand continues to soar in the Western Cape, with Stellenbosch and Cape Town Central coming out on top. “Stellenbosch’s appeal will presumably lie in the growing demand for student accommodation. Student accommodation remains a steady, profit-yielding investment choice in South Africa.”
The concentration of buy-to-let activity in Q4 2023 was within the R750,000 to R1.5m price band. Compared to the overall average purchase price of investment properties (now at R1.79 million), Sea Point registered the highest average purchase price – at R2.8 million – followed by Somerset West at R2.4 million.
Looking ahead: 2024 predictions
Despite the upheaval over the past two years, Dyer believes that next quarter’s statistics should start to paint a more positive picture of what’s to come. “We anticipate an interest rate cut from as early as March 2024, but more likely May 2024, followed by further rate cuts during the course of 2024.”
“As a result, consumer confidence will start to rise, especially among first-time homebuyers. We in fact anticipate that first-time homebuyers will once again account for more than 52% (currently at 48%) of bonded property transactions in the last quarter of this year. We also anticipate that our home loan approval rate will increase to more than 83% for 2024,” states Dyer.
Unpacking the sustained buy-to-let boom in the Western Cape, Dyer predicts that “investment buying in the Western Cape will continue its upward trajectory.” Furthermore, he anticipates that 30% of ooba’s home loan applications for 2024 will stem from buy-to-let properties in this region.
