Covid-19 has turned the property market on its head, with the trend shifting towards buying, because of low interest rates, rather than renting, leaving landlords out in the cold.
Consumer shifts from renting to owning have peaked, according to First National Bank’s (FNB) September property barometer.
“This is reflected in the stabilising flat vacancy rates and declining rental inflation. These shifts played a vital role in supporting home-buying activity in 2020 and into 2021, mostly in middle-priced segments,” the FNB report said.
According to the Tenant Profile Network vacancy survey for the second quarter of 2021 tenants are still in the market but in reduced numbers, raising the competition among landlords.
“It’s a tenant’s market, an oversupply of vacant properties is driving down rental prices as tenants are in the position to shop around for a better deal,” the survey says, adding that the biggest threat to the recovery of the residential rental market remains the high unemployment rate.
“Household size is expected to increase as co-living becomes a solution for affordability while tenants get back on their feet financially,” it said.
A swathe of interest rate cuts in 2020 as the South African Reserve Bank tried to mitigate the impact of the Covid-19 pandemic on the economy have been a major contributor to the growth of the property market, making property investment more feasible, especially for first-time home buyers.
The central bank has reduced the repo rate at which it lends to commercial banks to 3.5%, meaning the prime lending rate at which they in turn lend to customers has dropped to 7%.
The low interest rates, combined with the fact that no transfer duty is payable on properties up to R1-million, has greatly increased participation by first-time buyers.
Property expert Zamantungwa Khumalo, who hosts a podcast, said rental vacancies in some areas and suburbs have remained high as a result: “Sandton is a complete bloodbath in terms of vacancy rates. This has pushed down rental prices. So, a two-bed, one-bath apartment that used to be R10 000 and sometimes as high as R18 000, you would be able to get for as low as R 8 000 in the Sandton area in some instances,” Khumalo said.
Landlords have been reducing their prices, even when they realise they won’t cover the expense of their properties, just so they are able to collect some rent, said Khumalo. “For people who are not ready to make the jump to home ownership, for whatever reason, this is a great opportunity to negotiate rent.”
She said landlords were luring tenants with incentives such as uncapped WiFi.
“It’s a big one because we are working from home and we all know how high data prices are. I see landlords also giving discounts on deposits or offering one rent-free month.”
Khumalo said in some instances, tenants were downgrading or moving home to live with parents because of unemployment.
A survey conducted by research agency Finder.com found that 54% of respondents believed current home-buying rates were affecting the rental market in a negative way.
In the same report both Peter Worthington, a senior economist at Absa, and Sanisha Packirisamy, an economist at Momentum, said rental inflation was currently low, indicating that people were buying rather than renting.
But Citadel chief economist Maarten Ackerman said he was not buying the hype, insisting that “the rental market remains attractive especially where first-time buyers don’t have the required deposit”.
In agreement, Dawie Roodt, the chief economist at Efficient Group, said the trend towards house purchases would “mostly be neutralised by falling income”.
Second-quarter statistics released by mortgage finance company Ooba show that 100% bonds are in high demand from first-time homebuyers and that about 60% of first-time homebuyers acquire property without a deposit. Bank approval rates on 100% bonds for first-time homebuyers remain strong.
According to Private Property, data from the deeds office shows that homebuyers under 35 account for 43% of residential sales, a 38% increase from 2019. Millennials (ages 25 to 40) represent the predominant buyers of property.
Khumalo, however, warned that interest rates would not remain low indefinitely, particularly as economic growth started to pick up.
“I think it’s a great buyers market if buying was your plan. People should not buy purely based on the lower interest rates. That is a bad decision,” she said.
“One piece of advice I give people is to try to calculate if they’ll afford the home based on where interest rates were last year January. If you can still afford it based on the interest rates then, you will be comfortable because we know interest rates are going to come up,” said Khumalo.
Anathi Madubela is an Adamela Trust business reporter at the Mail & Guardian.