The number of South Africans compelled to sell their homes due to an inability to keep up with bond repayments is increasing significantly. This trend is especially worrying for those closely monitoring upcoming interest rate decisions, hoping for relief.
In the first quarter of this year, 17% of sellers parted with their homes because of financial difficulties. This figure rose to 24% in the second quarter of 2023, according to recent data. This 6% increase is notable, as it surpasses the historical average of 18% and is just slightly below the 30% reported in the last quarter of 2022. It also represents a 4% rise compared to the same period last year, according to FNB property economist Siphamandla Mkhwanazi.
Sales driven by financial strain are predominantly higher in the affordable housing market, with approximately 32% of sales attributed to this reason. Mkhwanazi explains,
“This reflects the impact of the sharp increase in debt servicing costs, which should have a more pronounced impact on lower-income households.”
In Johannesburg and Randburg, around 10% of primary residence sales are due to financial pressure, says Cobus Odendaal, chief executive of Lew Geffen Sotheby’s International Realty in these regions. The percentage is higher for second or investment properties, ranging between 15% and 20%.
“What we’re also seeing is that there is an increasing number of potential sellers sitting tight to see what happens with the interest rates in the near future. However, many are already on their reserves, so I suspect to see an influx of financial pressure properties on the market in the near future if a semblance of stability doesn’t return soon,”
Odendaal notes.
He adds that the return on investment for second properties is under significant strain because rental income is not keeping pace with rising bond repayments, leading many landlords to fall behind.
About 25% of sellers are downsizing for various reasons, but Odendaal believes this number could rise depending on sentiment, confidence, and interest rates.
“There are numerous reasons that people downscale and not all are due to financial pressure. Many people still move into a smaller home when they retire or once the children have moved out – often times to a low maintenance, lock-up-and-go option which allows for easier travelling. But, yes, sadly there are more people downsizing these days out of necessity and to keep their heads above water in increasingly trying financial times.”
Richard Gray, chief executive of Harcourts South Africa, indicates that the number of people selling due to affordability issues varies by price bracket. In the mid- to lower-market, the proportion is significantly higher at 20% to 30% compared to the higher price brackets, where it stands at around 10% to 15%.
Gray observes,
“The primary reason has been the increase in the prime lending rate but is also coupled to other factors such as load shedding, fuel prices and general cost of living. We have also seen an increase in bank-assisted sales where clients have fallen behind on their mortgage payments.”
The proportion of people selling to downscale ranges from 15% to 30%, with financial pressure being the main driver. Gray explains,
“Secondly is the empty nest syndrome whereby the children have grown up and flown the coup and the property is now too big for the remaining parents, and thirdly, from a security perspective, people are downscaling from big freeholds to smaller units in what is perceived to be a more secure environment.”
Many sellers who relinquish their homes due to financial constraints end up renting post-sale as they enter into debt agreements with banks for the shortfall on their sold properties.
“Those that still have access to finance or who are downscaling for reasons other than financial tend to favour buying. There is still a strong view, especially with the older generations, who make up the majority of those downscaling for non-financial reasons, that owning is preferable to renting.”
David Jacobs, Gauteng regional sales manager for the Rawson Property Group, also notes an increase in bank-distressed sales. He attributes these issues to the interest rate hikes, which have particularly affected first-time homebuyers who stretched their finances when interest rates were lower over the past three years.
“They are now finding it difficult to maintain these payments with the interest rate hikes.”
Balwin Properties has experienced its most challenging year in its 28-year history due to rising interest rates, higher fuel and food prices, and political uncertainty impacting housing demand. The company, which develops apartments for the upper to middle-income markets, reported a sharp 48% decline in headline earnings per share to 47.94 cents for the year ending February 29.
This decline is also evident in the latest Rode Report on the South African Property Market, which indicated that both FNB and Lightstone’s house-price indices recorded the lowest growth rate in the past four years during the last quarter of 2023, including the Covid lockdown period.
Read “Why Investing in South African Property May Not Yield the Expected Returns” for a detail analysis.
