Home owners: Bond free but riding the slump
The full swing of the interest rate-rising cycle is expected to cool down a residential property market already exerting mounting pressures.
Although the housing market is still impacted by humdrum property valuations, and buyers down-sizing their property ambitions due to affordability issues, it seems like there is some respite for a particular segment of property owners.
There is a significant number of home owners that are bond-free, who are insulated from monthly mortgage contributions and exposure to interest rate shocks.
No doubt that interest rate shocks are top of mind for home owners given the recent rise of the repo rate by 25 basis points, pushing up the prime lending rate from 9.25% to 9.5%.
Of the 6.1 million residential properties registered with th deeds office, 65.7% of properties are not backed by mortgage loans, the latest figures from data analytics group Lightstone confirm. This leaves about 34.3% of home owners being committed to mortgage bonds.
Lightstone pegs the overall value of residential properties at R4.4 trillion. Data and analytics director Paul-Roux de Kock says more than 50% of this value in the property market is bonded.
De Kock says the bulk of mortgage bonds fall in the category of properties that fetch higher valuations. His views are supported by veteran property economist Neville Berkowitz, who says bond-free property owners come mainly from two market segments: government-subsided individuals and empty nesters.
Berkowitz, who is also an advisor to low-commission estate agency Homebid, says approximately 24% of homes registered are government-subsidised properties for people earning from R3 500 to R15 000 per month. The market these property owners come from is commonly referred to as the affordable housing market, where property values are typically below R600 000.
This market continues to sparkle, as house prices have been trumping higher priced properties.
Since 2009, properties valued at over R600 000 have increased in value by almost 30%, while properties under R600 000 have grown by 33%, according to a recent report by the Centre for Affordable Housing Finance for Africa. Furthermore, properties which are valued at less than R300 000 have posted a cool 40% increase in value.
Other figures from more experts show a similar trend. Former townships saw a house price growth of 11.6% for the first quarter of 2015, compared with 9.3% in the previous quarter, according to FNB. The bank's household and property sector strategist John Loos says the market saw 25% of first-time buyers, from a high of 28% in the previous year.
Of new property sales, the proportion of bonded transactions have been running at around 50% of sales every quarter, with the proportion of cash sales much higher in the lower value markets, De Kock adds.
On the other hand the empty nesters, typically in the age group of 50 to 70, who represent up to 30% of the residential market are also driving the bond free segment.
Berkowitz says these individuals sell their larger homes to move into smaller ones and are using proceeds from the sale to buy larger homes.
Bond-free estimates from FNB and Absa are in line with Lightstone and the deeds office figures, as they often use quote and refer to them. According to Absa's second quarter housing review, freehold properties are the most bond free, followed by sectional titles and then estate properties (see graphic below).