Banks may tighten their lending criteria in 2021

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Banks may tighten their lending criteria in 2021

By Opinion Time of article published 32m ago

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The demand for homes priced at less than R2m is expected to remain very lively in 2021 as long as interest rates remain at current levels.

This demand will be supported by large numbers of first-time buyers as well as repeat buyers downscaling from more expensive properties, says Gerhard Kotzé, MD of the RealNet estate agency group.

“However, we may see the actual number of transactions in this bracket start to slow down as the banks begin to lend more cautiously in the face of growing concerns about employment stability. In fact, we are already seeing bond approval numbers drop from the highs of July and August 2020, and fewer grants for 100% home loans. The possibility of large-scale retrenchments this year in big private sector companies and the public sector is especially worrying.

“Nevertheless, we expect price growth and possibly even real (after inflation) price growth in the under-R2m market this year due to steadily tightening inventory constraints, especially at the lower end of this sector.”

Meanwhile, he says, the second tier of the market (between R2,5m and R4m) is set to encounter fairly strong headwinds, and owners in this sector who need to sell their homes should list them as soon as possible.

“We foresee that middle-income consumers are in for a tough 2021, with debt relief measures having come to an end, minimal salary increases expected and the cost of everything from schooling and medial aid to electricity, water and transport set to rise as usual. In addition, some R5bn worth of income tax increases are expected to be announced in February.

“Consequently, the number of homeowners who are selling to alleviate financial pressure can be expected to rise, and the number of distressed sales can also be expected to increase. This will add to the available inventory in this category and put downward pressure on prices.

“In fact, homes that are being sold through the bank’s distressed seller programmes are generally only reaching 85% to 90% of value now, compared to an average of about 95% at the start of 2020. And we expect that they could go as low as 80% of value.”

This will of course present some great opportunities for buyers but, says Kotzé, will also leave many distressed sellers in the position of still having to pay off quite a large portion of their outstanding home loan, even after their property has been sold.

“Although their credit record will be preserved, this will hamper their financial ability to secure another property or even a rental home, so once again we would urge anyone who needs to sell now to do so without delay.”

Looking at the rental market, he says rentals are likely to show only very minimal growth (if any) due to the current combination of high vacancy rates and economic pressures on tenants – and that most landlords and rental agents are likely to apply increasingly strict credit and rental record checks. Deposit requirements are also likely to rise.

“A very large number of quality tenants have become home buyers in 2020 due to the lower interest rates, and on top of that landlords have had to contend with extensive non-payment issues due to the economic effects of Covid19 pandemic and lockdown, so they are already very cautious when it come to new tenants.

“And unfortunately a large number of those who are likely to be looking for rental properties now are people who already have some financial problems, so there will be a need to be even more careful – and to enlist the help of professional rental agents.”

Alternatively, says Kotzé, quite a number of rental property owners will probably just decide to sell off their portfolios now, so astute investors who have the means to buy quickly should look out for the “bargain” flats and townhouses that will come on to their local markets as a result.

With regard to the real estate industry itself, he says the pandemic has already caused a contraction in agency numbers similar to that experienced after the Global Financial Crash in 2008. “As a result, many part-time or non-serious agents have exited the market once again, and the industry is again seeing significant convergence of the top performers around the larger companies with established brands and, equally importantly, the knowledge, technology and means to support agents who want to work remotely.

“As an example, the RealNet group has grown from around 300 top agents to around 400 since the start of 2020, and expect a similar number if not more to join us in the next 12 months.”

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