SA Affordable Housing November - December 2019 // ISSUE: 79 | Page 5

EDITOR'S NOTE
di
www.saaffordablehousing.co.za
S
tatistics SA figures report that building completions
are at their highest level in nearly a decade, but
at the same time people are holding on to their
properties for twice as long as historically.
“South Africa is into the longest business cycle
downturn in the post-World War 2 era, the existing
home market is well-supplied and price competitive, and
new residential building affordability has deteriorated
relative to existing home prices as well as relative
to household incomes, according to our affordability
indices,” says FNB property strategist John Loos in a
recent newsletter.
“A slowdown in the level of residential completions
in the near term should be expected given the current
environment. And indeed, a further sharp year-on-year
decline in the number of residential units’ plans passed
to the tune of -24.8% in the second quarter, a useful
leading indicator for building activity trends, suggests
that such a near-term slowing is likely.”
FNB’s Property Insights points out that mortgage
lending is a leading economic indicator with a tight
correlation to the SA Reserve Bank’s Leading Business
Cycle Indicator. Based on recent trends, the economy
(and house prices) appear to be flatlining and will likely
remain that way.
A decade ago, homeowners would flip their properties
every seven or eight years. Now in South Africa, and as
a sign of our fraught economic times, they are holding
on for an average of 14 years. The buoyant property
market of a decade ago is well and truly over, with
diminishing prospects for capital gains. The days of 15%
to 20% annual house price increases are gone, forcing
homebuyers and investors to play the long game.
At the moment average house prices are barely
keeping up with inflation. FNB’s House Price Index has
been moving sideways at about 3.3% in recent months,
unable to keep up with consumer inflation.
First-time buyers of affordable housing are staying
longer in their homes because this is generally where
they live as a primary residence and therefore their
homes are less likely to be traded for investment activity.
In the past, buyers would either sell their properties
Homeowners
staying longer
in their homes
to
r
voluntarily, or as a result of foreclosure. But stats from
Lightstone, the provider of comprehensive data, analytics
and systems on property, show the number of properties
entering the sale in execution process (a legal process
following default on mortgage loans) has dropped
considerably.
Most mortgage loans issued in South Africa are for 20
years, though most of these are settled ahead of time,
according to an analysis of deeds data in recent years.
A growing number of homeowners are taking longer to
settle their mortgage loans. In the majority of cases, the
reason for early home loan settlement is the sale of the
property so it also provides a good proxy for how long
people generally stay in their homes.
Buyers of multiple properties are likely to hold these
properties for less time, as these are more likely to
be traded for investment purposes. Yet even for such
investment properties the settlement time has steadily
been increasing over the last decade, indicating that
more of these properties are now held as longer term
income generating assets rather than speculative capital
growth assets.
There has been a significant drop in the number
of properties sold in execution as the result of courts
being less sympathetic to banks seeking foreclosure as
a first resort, and recent court cases in Gauteng and the
Western Cape requiring that properties be sold with
reserve (or floor) prices. This was to stop properties
being sold for a fraction of their worth, which was a
common occurrence in the past.
Banks themselves have to some degree reduced their
practice of seeking sales in execution, preferring to reach
accommodation with customers in financial distress. In
papers filed in court cases earlier in 2019, banks claimed
they used sale in execution as a last resort.
Eamonn
NOVEMBER - DECEMBER 2019
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