AA - Feb 2022

Author:  FNB Residential Property Barometer
14 February 2022


Residential property market volumes may have peaked, but they are still running above pre-pandemic levels, according to FNB’s latest Residential Property Barometer with the affordable segment having shown the strongest recovery in activity.

The middle-priced segment’s buying activity also remains strong, supported by lower interest rates, credit availability, and pandemic-induced changes in housing needs, but its growth is moderating.

According to FNB, current buying activity is largely driven by demand recovery in the ‘affluent markets’, stoked by good pricing i.e., value for money, the low interest rate environment, and the work-from-home trend.

Despite slowing volume growth, the value of mortgage extensions continues to trend higher, reflecting a shift towards higher-priced and larger properties. In 2021, the value of outstanding mortgage advances grew by 6.3% compared to 2020, the fastest pace since 2008.

Data shows that during the first 9 months of 2021, the average mortgage size approved was approximately 16% higher with the average property size approximately 6% bigger, when compared to the same period during 2019.

And while an increase in interest rates by at least an additional 100bps this year, on the back of rising inflationary pressures and less accommodative global monetary policy conditions, may have a ‘cooling’ effect on market volumes (and eventually price growth), FNB points out that the current wave of buying activity is predominantly driven by buyers who are less sensitive to interest rate hikes.

“We expect buying activity to remain relatively supported in the medium term and price growth should stabilise at lower levels compared to 2021, at around 3.5%, from 4.2%” notes Siphamandla Mkhwanazi, Senior Economist at FNB.

“Higher interest rates will reduce affordability and the attractiveness of homeownership relative to renting. However, we think ‘marginal buyers’ have already brought forward their purchasing decisions, taking advantage of ultra-low interest rates. In the medium term, we expect that buying activity will be driven by less interest rate sensitive buyers, largely in higher priced brackets. Innovation and heightened competition among lenders should also boost activity”.

“A key constraint is weak employment growth, which continues to lag economic recovery. However, the wage bill has recovered to pre-pandemic levels, albeit uneven across skill and income levels. This, combined with still-strong growth in non-labour income, and rising preference for homeownership, (behavioural conditions), should counteract the downward pressures on volumes growth and, ultimately, house price growth, mainly in middle to higher-priced segments”.

After troughing at 0.6% year-on-year growth in March 2021, rental inflation has been gradually normalising, lifting to 1.1% in December 2021. FNB anticipates rental inflation to reach 2% on average this year, ending 2022 at around 2.5% – in line with the ongoing recovery in aggregate incomes and household demand, higher interest rates weighing on demand for homeownership, as well as improved mobility that may push people closer to business districts for work. However, the pace of recovery is expected to be constrained by weak employment growth and the rising cost of living.