Lower house prices in the Western Cape behind renewed interest from first-home-buyers

Posted On Thursday, 16 July 2020 21:50 Published by
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Property in the Western Cape is regarded by many as among the most expensive in the country, and for first-home buyers, often completely out of reach. 


However, the recent drop in regional house prices, as well as the favourable lending environment created by the lowest interest rate in decades, is helping first home buyers to at last gain a foothold in this competitive property market.

BetterBond reports that first-home buyers accounted for 62% of its home loan applications in the Western Cape during June, up from the same period last year. “Increased activity from first-home buyers bodes well for some recovery of the property market as lockdown restrictions ease,” says Carl Coetzee, CEO of BetterBond.

“We are pleased also to see that nationally, first-home buyers account for 70% of our home loan applications for the year to date. This is an increase of almost 17% compared with last year.”

While some of this activity may be due to pent-up demand, exacerbated by the lockdown period, the dip in house price inflation in recent months, particularly in the Western Cape, as well as the favourable prime interest rate, are also contributing factors.

“The average purchase price of homes in the Western Cape has dropped by 3% compared with June last year, while the price of homes for first-home buyers has dropped by 6%, says Coetzee. Most of the other provinces, including the Eastern Cape, Northern Cape and KwaZulu-Natal, have shown average price increases of between 4 and 11% for the same period. 

The FNB Estate Agent Survey for the second quarter of 2020 also attributes the modest market recovery to the release of the pent-up demand created because of lower purchase prices and borrowing costs. Certainly, the recent repo rate cuts have given first-home buyers some wiggle room when seeking pre-approval for a home loan, notes Coetzee. BetterBond’s figures show that the national average deposit of purchase price for first-home buyers has dropped by 21%, allowing new buyers to apply for a bond without having to wait until they have a sizable deposit in hand. 

Adrian Goslett, Regional Director & CEO of RE/MAX of Southern Africa says the interest from first-home buyers is encouraging, at a time when sales activity has been predictably slower because of lockdown. “Our reported sales figures in the Western and Northern Cape Region dropped by 32% year on year. This is despite the fact that across all markets we have noticed an increased interest in the first-home buyers’ market. Many within this segment are looking to capitalise on the low interest rates and are bargaining down prices.”

Agents surveyed by FNB agree that buyer interest is particularly strong at the lower end of the market. “The fact that there is no transfer duty payable on homes of up to R1 million is undoubtedly an added incentive for first-home buyers, and just over 45% of BetterBond’s loans approved in the past year across the country were for homes of between R500 000 and R1 million,” says Coetzee. 

Goslett adds: “Properties below R400,000 continue to account for the largest portion of sales at 32.4% of the total transfers registered at the Deeds Office during the second quarter, while the luxury market (homes over R3 million) shrunk to just 3% of its usual 5% share of the market.

” Although he predicts a slow corrective growth in the residential property market for the remainder of the year, Goslett emphasises that current market conditions present investors with a significant opportunity. “With interest rates at a historic low and with downward pressure on house prices, investors stand to make great returns on investment by purchasing property now.” This is especially true for first-home buyers, who would do well to use the current lending climate to get their foot in the door,” concludes Coetzee. 

Last modified on Thursday, 16 July 2020 21:57

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