FINANCE MATTERS impact of public investment in expanding home ownership and the key role that the resale of government-subsidised housing can play in expanding access to home ownership .
COVID-19 IMPACT AND INTEREST RATE-INDUCED DEMAND
Although the impact of Covid-19 will be more fully reflected in 2020 deeds data , preliminary analysis indicates that the first-time home buyers ’ market was more active than expected . This was in part due to pent-up demand from delayed transactions , as a result of the closure of the Deeds Office . To a larger degree , lower interest rates created an opportunity for first-time home buyers to enter the property market . A series of rate cuts by the South African Reserve Bank brought the prime and base home loan rate down from 8.75 % in March 2020 to its current rate of 7 % ( the lowest level in over 50 years ). This increased affordability and broadened access to mortgage finance , particularly for firsttime ( working-class ) home buyers .
“ In 2019 , more households were becoming first-time homeowners in Gauteng than any other province .”
Lower or zero deposit requirements on home loans also boosted the mortgage market and access to housing for qualifying buyers . According to reports in the press , in the third quarter of 2020 there was a 7 % year-on-year increase in the demand for 100 % bonds , with a large percentage of first-time home loan applicants approved for a loan with no down payment . 1 Lower monthly bond repayment costs , and a preference for buying ( compared to renting ) attracted tenants into purchasing properties .
Increased demand for spacious properties , to accommodate a more comfortable work-from-home environment also stimulated first-time buyer transactions in 2020 . According to analysis by Lightstone , most first-time home buyers were young and fell in the 21-to-25-year age group . Females also made up the majority of first-time home buyer activity in 2020 . 2
Analysis by Lightstone indicates that first-time home buying activity was also fuelled by new buyers moving away from the informal housing market and into the formal affordable segment . New buyers were moving out of RDP developments that were in proximity or within townships , in favour of locations closer to their places of work , in order to reduce travel time — this trend was not unique to first-time home buyers .
The interest rate-induced demand by first-time home buyers is occurring within the context of worsening economic conditions , both locally and globally — according to National Treasury , South Africa ’ s Gross domestic product ( GDP ) is expected to grow by 3.3 % in 2021 and just 2.2 % in 2022 . Therefore , with employment levels and economic growth subdued , household affordability and demand for housing in the long-term will be driven by broader economic prospects .
IMPLICATIONS FOR AFFORDABLE HOUSING
Most first-time home buyers enter the market at the low end . However , apart from government-subsidised housing
1 Business Insider ( 2020 ). 100 % home loans are booming . Biznews ( 2020 ). Property trends that shaped SA ’ s residential sector in 2020 . 2 Lightstone ( 2020 ). First time buyers go straight for the mid-market : https :// chi . mailblaze . com / index . php / campaigns / as549c3brsb6e
www . saaffordablehousing . co . za JULY - AUGUST 2021 21