NOMPU SIZIBA: Residential property prices have taken a beating as a result of the Covid-19 national lockdown. This creates an ideal situation for those who have not been adversely affected by the pandemic to invest in property right now, whether it be to purchase a home or buy-to-let. The low interest-rate environment will also be conducive for this. Having said that, for those looking to buy, but needing to sell a current property, they would need to be mindful that their property won’t fetch what it could fetch maybe four, six months ago.
Well, to tell us how they’re seeing the property buying and selling landscape, I’m joined on the line by Shaun Rademeyer, the CEO of MultiNET Home Loans. Thanks very much, Shaun, for joining us. So you guys are in the mortgage loan-origination business. What trends have you seen in terms of demand for these loans from the beginning of the year through to now?
SHAUN RADEMEYER: What we’ve actually seen is a very steep incline in demand in June. In fact, our company has shown a 47% increase versus 2019, which is unprecedented given the environment we’re in at the moment.
NOMPU SIZIBA: You indicate that real house prices have declined by around 12% in June, compared to June last year. Just take us into the mechanics of why prices have come down to this extent.
SHAUN RADEMEYER: Well, I think the first thing is that you have consumers who need to sell because they have lost their jobs or got retrenched. And, all of a sudden, you have a big demand increase. However, with Covid-19 causing a lot of the economic [disasters] that we see in the market, you have consumers who are also looking to offload second properties that they have, which they won’t be able to afford. So we are in an environment where normally, when demand increases, prices increase; but here we have demand increasing and prices decreasing.
NOMPU SIZIBA: So demand to buy property should be a very welcome phenomenon for the banks, at least. But of course we’re in a very tricky economic time, like you’ve just mentioned, where retrenchment appears to be the order of the day and job security has become almost non-existent. So how will that impact their loan-approval levels, because this will be a major risk?
SHAUN RADEMEYER: Absolutely. Look, the banks most certainly look at sectors in the market that are going to be high risk, and those consumers will find it more difficult to find financing in the market. However, there are sectors in the market that aren’t high risk. The food industry is doing so well, as is IT, and the people in both industries, specifically the first-time buyers, are seeing the opportunity now to buy property at a low interest rate. The prices are low and they can get into the market where previously they couldn’t.
NOMPU SIZIBA: So, for those having to sell a property in order to perhaps buy one in a better area, whatever the reason, they will obviously need to be mindful of the lower pricing environment. Given that we’re in an unprecedented time, what can they do to get a more accurate measure of the worth of their property because of this very rapid movement in prices?
SHAUN RADEMEYER: Yes, it’s very, very difficult at the moment, and the prices weren’t the same in May as we are seeing in June. Sellers would need to keep an eye on what’s going on in terms of markets, on how they are being marketed, and how long they staying on the market at the price they are at. The market is driven by demand. And, even if you say that your price is R2 million, but the consumer is only willing to pay R1.8 million, your price is only worth R1.8 million.
NOMPU SIZIBA: Yes.
SHAUN RADEMEYER: And people need to understand that.
NOMPU SIZIBA: A lower interest-rate environment is obviously helpful for buyers, but what are your thoughts about fixing the interest rate to gain certainty of one major expense over a certain period of time?
SHAUN RADEMEYER: The first thing you need to remember about fixing your interest rate is that it’s not for the full term of your loan. It’s normally only for five years, and you would normally have it at prime-plus-two or 2.5 [points] above what it currently is. So, if you think that the interest rates will increase more than 2.5% over the next five years, then it’s a good idea for you to fix it.
However, as we see where the market’s going, inflation being low, we don’t foresee such a massive increase in interest rates over the next two years. And, if you weigh in what you are actually paying over the two years that you wouldn’t have to pay the high interest rate, I believe taking a variable interest rate is still the best at the moment.
NOMPU SIZIBA: We’ve just heard from the likes of Growthpoint, who say that they expect property prices to fall by about 20%. So we know that property in general has taken a beating. What’s your reckoning around a bounce-back, or is it going to take some quite some time to get back to pre-Covid price levels?
SHAUN RADEMEYER: Well, let’s think about where we are in the market at the moment. The banks have just given a three-month probation, or a payment holiday, which started in March, April and May. So in June those consumers now need to start paying their bonds again. Many of them might not be able to, and they would be going into a process of actually selling their property. I believe prices will be under pressure for the next eight – maybe even nine – months until we see the economy start growing again. Then we’ll see the demand start increasing and the prices will follow.
So I think we are going to be in this type of environment for quite a few months still.
NOMPU SIZIBA: Despite that, for those people who haven’t been affected in an adverse way by Covid, if they have money, do you think it’s worth investing in an investment property? But then again, you would need to be able to secure a decent enough rent to be able to pay for that liability.
SHAUN RADEMEYER: We’re in an environment where it’s never been done before; we haven’t seen this in the past, it’s new for everyone. I think for first-time home buyers, it’s the best time to get in the market. I believe they are paying rental that is higher than the amount they can actually pay for a bond now. So, for anyone in the market who has been paying rent, they need to now go in and buy themselves an asset that will last them for lifetime.
In terms of buying a property as an investment, I think you need to be very clear and very understanding of how that works. If you are only climbing into that type of environment now, I don’t think it’s good for you. I do believe people who have been in the market and have got a big property portfolio – who understand the ups and downs – will probably take the opportunity to find, let’s call it, bargains in the industry to build onto their property portfolios.
NOMPU SIZIBA: Our thanks to Shaun Rademeyer, the CEO of Multinet Home Loans.