By Maria Nkhonjera, Centre for Affordable Housing Finance in Africa (CAHF)
A more inclusive and targeted approach for promoting adequate housing must prioritise support for first-time home buyers stepping onto the property ladder.
This includes attention to the supply of lower-priced units in the new build and resale markets, as well as the availability of end user housing finance. Drawing on title deeds data obtained from Lightstone, this analysis of first-time home buyers shows how the housing market is growing, and the most critical avenues households rely upon to achieve ownership.
Overview of first-time home buyer market activity
In 2019, approximately 94 000 households became home buyers for the first time, accounting for 42% of all formal residential transactions (on South Africa’s deeds registry). Almost half (45%) of first-time home buyers entered the property market at the low end (properties valued below R600 000), thus acting as significant drivers of transaction activity in the entry and affordable markets.
The proportion of low end, entry market transactions by first-time home buyers has decreased over time, accounting for 50% in 2009, compared to 25% in 2019. At the same time, the luxury market (properties over R1.2 million) accounted for only 6% of first-time home buyer transactions in 2009, tripling to 18% in 2019. This could indicate the more significant role played by government-subsidised housing programmes in earlier years, but also increasing obstacles to low-income households looking to purchase a home. In 2019, for example, 21% of first-time home buyers were beneficiaries of new government-subsidised housing. Another 8% formally purchased a government subsidised property on the resale market. The first-time home buyer’s resale market is significantly more active than the market for new build properties. In 2019, 82% of all residential transactions by first-time home buyers were resale, while 18% were new transactions—indicating that the resale market is the main means for first-time home buyers to step onto the property ladder.
Provincial trends
In 2019, more households were becoming first-time homeowners in Gauteng than any other province. Gauteng accounted for the largest (44%) number of transactions by first-time home buyers in 2019, while the lowest number of transactions was recorded in the Northern Cape, making up only 2% of the total transactions. With respect to market segments, one third of first-time home buyer transactions in the Western Cape were valued below R300 000, the highest proportion across the provinces, likely driven by the inclusion of government housing beneficiaries in this figure.
In 2019, the province where first-time home buyers were most likely to use a bond to buy their home was Gauteng, where over two thirds of first-time home buyers accessed housing finance to make their purchase. In contrast, the majority of first-time home buyers in Limpopo (73%) and the Western Cape (55%) made their purchase without a bond.
The Western Cape (43%) and Gauteng (23%) accounted for the largest share of government subsidised property transactions by first-time home buyers. Of the total first-time home buyer market in South Africa, 29% were transactions of government-subsidised houses – highlighting the critical 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 first-time (working-class) home buyers.
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 programmes, which have been critical for providing access to the formal property market for low-income households, there is limited delivery of entry level properties financed by the private sector. This poses a serious challenge to working class South Africans and creates a gap of new supply for lower income families who want to become homeowners.
Despite the mortgage market being supportive of first-time home buyers in 2020, overall, mortgage activity favours the high end, with limited housing finance in the entry and affordable markets. Despite stated bank interest in the affordable market, there is little evidence of this in the numbers of affordable property transactions financed with a mortgage. There is great potential—especially in the resale market—for banks to expand their role down market and support the entry of first-time homeowners into the property market.
Metro support for first-time home buyers
Local municipalities can play a key role in assisting households to access mortgage finance and get a first step on the property ladder.
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
Given the importance of the resale market, replacing the practice of informal residential property transactions with formal transactions could provide an important supply of more affordable properties for first-time buyers. Leveraging the resale market for this purpose will require transaction support, including assistance with regularising title for properties already informally traded, or which never received title in the first place. The Centre for Affordable Housing Finance in Africa (CAHF) and 71point4 have established a Transaction Support Centre (TSC) that has piloted the approach in Khayelitsha, Cape Town. Replicating and supporting the roll-out of this model in other areas could enable the development of working residential property markets for low-income South Africans, and for first-time home buyers in particular.
Area-based green lining can support mortgage and non-mortgage finance in low value areas and would open the market up for first-time buyers. This would require banks and lenders to collaborate with municipalities to boost investment in identified areas. Municipalities can play their part in terms of creating investable areas—through expedited plan approvals and rates clearances, targeted design of municipal rates policies, and the implementation of area-based improvement initiatives.
| With the support of the Cities Support Programme, CAHF develops interactive dashboards and detailed reports analysing residential property markets in South Africa’s eight metros. For further analysis using title deeds data, and a note on the methodology applied, visit the CAHF website http://housingfinanceafrica.org/projects/citymark-analysis-of-residential-property-markets-in-south-africas-eight-metros/
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With the support of the Cities Support Programme, CAHF develops interactive dashboards and detailed reports analysing residential property markets in South Africa’s eight metros. For further analysis using title deeds data, and a note on the methodology applied, visit the CAHF website http://housingfinanceafrica.org/projects/citymark-analysis-of-residential-property-markets-in-south-africas-eight-metros/
About the author:
Maria
Maria Nkhonjera is a senior research manager at the Centre for Affordable Housing Finance in Africa (CAHF), where she contributes to sector monitoring and market intelligence in housing and housing finance. She has a special interest in the role of inclusive and innovative finance in African markets and has conducted evidence-based research across sectors in Southern and East Africa. Maria holds an MCom from the University of the Witwatersrand.
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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
