JOHANNESBURG - The growth in South African house prices rebounded to 1.4 percent year-on-year in July from 0.7 percent the previous month, reflecting the unexpectedly rapid recovery in market activity since the easing of lockdown restrictions relating to Covid-19, First National Bank said on Tuesday.
In its latest ‘Residential Property Barometer’ report, the bank said initial expectations for the pandemic to have a more chilling and lingering impact on activity, with pent-up demand filtering through only later in the year, had not materialised.
Instead, the volume of new mortgage applications had rebounded beyond levels seen before South Africa entered the lockdown from March 27 to try and curb Covid-19 transmissions.
This was also supported by the volume of buyer leads, derived from web traffic to property portals, which had risen above expectations, FNB senior economist Siphamandla Mkhwanazi said.
He said the rebound in activity partly reflected pent-up demand from the lockdown period, where buying decisions were taken before its commencement, including delayed purchases on the back of significantly lower transfer duties announced in the February national budget which came into effect in April.
Also, record low mortgage rates after the central bank slashed interest rates to try and boost the ailing economy had given more people an incentive to purchase properties, including first time buyers.
"In other words, sales that would otherwise have taken place some time in future are happening now, with some buyers looking to fix mortgage rates while they are at record lows, fearing that they might increase in the near future," Mkhwanazi said.
"Lastly, there are early signs of behavioural shifts, as homeowners reassess their housing needs and preferences as a result of life in lockdown. Anecdotal evidence shows rising demand for bigger properties (mainly freestanding homes), notably in less crowded 'second-tier' cities."
FNB said historically low interest rates and lower transfer duties, particularly in the middle-priced segment, would continue to support activity, and by extension, house prices in the very near term.
However, there was still a great deal of uncertainty around the lasting impact of the Covid-19 pandemic, with a significant weakening in labour market conditions implying a greater downward pressure on house prices in the medium term.
"Thus, while a 'V-shape' recovery is apparent in the data, labour market tailwinds could have a more chilling effect ahead, leading to another drop in activity and thus a likely 'W-shape' recovery," said Mkhwanazi.
"In our view, the current pent-up demand will likely not be sustained, and is unlikely to replace the demand lost due to very weak labour market outcomes."
African News Agency (ANA)