The South African residential property market sector is in a rut but is poised for a gradual recovery.

According to the Q1 ‘24 oobarometer, the higher for longer interest rate environment has impacted ooba Home Loan’s application volumes for the quarter.

“However, resilient South Africans will likely be rewarded by predicted rate cuts towards the end of 2024,” said Rhys Dyer, CEO of the ooba Group.

“In Q1 ‘24, the volume of home loan applications processed were down by 9% from Q1 ‘23 and down 25% from Q1 ‘22.”

“However, we saw an 8% increase in application volumes in Q1 ‘24 compared to Q4 ‘23, and there is definitely more activity in the market.”

In addition, the average price of properties originated through ooba trended upwards, growing 3.1% year-on-year across both the first-time and national property price categories.

Both segments saw growth of 4.8% in the last quarter, with the current national average purchase price setting at R1,479,327, while for first-time homebuyers this figure sits at R1,171,798.

Dyer said that in Q1’24, 62% of the value of the applications processed by ooba Home Loans feel within the greater than R1.5 million purchase price band – an upward shift from the 59% in Q1 ’23.

“Conversely, a downward shift in homebuying activity in Q1 ‘24 in the price range below R1.5 million was recorded, as evidenced by ooba Home Loans’ graph showcasing the home loan applications (value) by purchase price segment over the last five years,” he said.

Moreover, despite economic fluctuations, bank approval rates remain steady at 83.4% of applications processed in Q1 ’24

“This is an indication that the banks’ lending appetites are still robust and – promisingly – that buyers’ financial standing has stabilised in the last year, considering that rates have remained unchanged since May 2023,” said Dyer.

The data shows that home loan applications are not as financially stretched as would be expected.

Although instalments as a percentage ticked up from 18.7% at the start of the rate hiking cycle in November 2021 to 19.4% in Q1 ‘24, it is still comfortably below the industry benchmark of 30%.

“Encouraging too is the finding that the ratio of ooba Home Loans applications declined by one bank but approved by another is trending higher (up 2.8% quarter-on-quarter), which clearly illustrates the critical role that bond originators fulfil for homebuyers by sourcing financing options from multiple banks.”

The country’s lenders are also further easing pressure on homebuyers by offering attractive discounts to prime, with the average weighted rate of concession now at -0.52% – 7 basis points cheaper than Q1 ’23, which is a welcome relief amid high interest rates.

Banks are competing for a share of a smaller home loan market, making finance more accessible by easing terms and conditions and offering better rate discounts.

This, in turn, has a positive impact on affordability, with banks continuing to offer additional rate concessions as an incentive for new-to-bank customers.

Looking ahead

“The residential property market is on the precipice of better times, and it is ready for a shakeup after a few trying years,” said Dyer.

“The expected rate cuts later this year combined with elevated bank approval rates and competitive property prices make right now the perfect time to get a foot on the property ladder.”