Rudi Botha, CEO of BetterBond, believes that while real estate and construction are among the economic sectors that are currently doing best – according to the latest GDP figures released by StatsSA – both could really do with a helping hand from the Reserve Bank in the form of an interest rate cut.
He says that although home prices and the value of bonds granted have continued to increase over the past 12 months, market expansion has been limited because of a decline in the number of new entrants.
“And this is a problem for the economy as a whole because it limits the scope for urgently needed new job creation in the finance, real estate and business services sector, which accounts for 20% of SA’s GDP, as well as the construction sector, which accounts for a further 4% of GDP.”
New home loan applications on the decline
The BetterBond statistics, which represent 25% of all residential bonds being registered in the Deeds Office, he notes, show that the actual number of applications for new home loans has declined by almost 10% over the past two years – and that a growing percentage (currently 55%) of the total demand for both properties and new mortgage finance is being generated by existing property owners who have decided to move or, in much rarer cases, to acquire additional properties.
“What is more, this gap can no longer just be ascribed to the fact that it is difficult for first-time buyers to save up the cash they need for a deposit, while repeat buyers have access to the proceeds of their sale when purchasing a new home. For one thing, the banks have been going out of their way for the past year to advance 100% home loans to first-time buyers.
“For another, the slow pace of property price growth means that many repeat buyers are not actually realising huge profits when they sell these days, and do not have large amounts of cash to use as a deposit. In fact, many are selling in order to downsize because they are also ‘cash-poor’ and want to reduce their expenditure on home loan repayments, maintenance and operating costs.”
High cost of debt, lack of affordability
The truth is, says Botha, that it is the high cost of debt and the lack of affordability that is putting the brakes on the real estate market, with the situation for first-time buyers being exacerbated by repeat-buyer downsizing that is sustaining demand and value growth in the lower price ranges (while lowering demand and value growth in the higher prices ranges).
“In short, something really needs to be done to assist first-time buyers and expand the ‘nursery’ of the market so that it can return to a normal pattern of growth and create more employment as well as personal wealth for home owners.
“And we believe that the best thing the Reserve Bank’s Monetary Policy Committee (MPC) could do later this month would be to decide on a meaningful repo rate cut that would immediately lower the monthly repayments on all forms of debt, from store cards to home loans.
“This would bring consumers some relief from the financial strain caused by this year’s VAT, fuel and municipal increases, enable more first-time buyers to qualify for home loans, boost the demand for affordable homes and help to create much needed jobs in the real estate and construction sectors.”