First Time Buyers (The Bugle)

If you are a first time buyer you are part of a very important segment of the residential property buying market that actually drives the market. As first time buyers represent new entrants to the property market, this represents a net increase in homeowners. Repeat buyers are on the whole selling one property so as to purchase another and therefore do not on average therefore represent a similar net increase. It is therefore of interest to us as property professionals to understand first time buyer behavior and also look out for the economic indicators that would typically assist us in predicting the level of first time buyer activity in the market. We know that overall economic activity (GDP growth) and employment rate growth and general remuneration growth directly affect first time buying. As most first time buyers rely heavily on mortgage bond finance to be able to secure their purchase, their employment and disposable income status is all important in influencing the decision to take the first step in property ownership. I am a firm believer that real wealth is created over time through property ownership, and the sooner you get onto the property ladder the sooner you will be able to experience the beauty of watching your property value grow.  

Ooba, one of South Africa’s leading mortgage origination service providers has indicated in their September 2013 report that the average price for first time buyers was R674,590. The average cash deposit paid is currently 14.1% of the purchase price, which is down from 17,9% in September 2012 and down from 15% in the previous month. Many first time buyers lack accumulated savings at this stage of their lives, and the deposit portion often becomes the stumbling block to home ownership. However, we do know that 100% bonds are being granted, but we also know that the best financing terms are provided to those buyers who have a substantial deposit. Ooba reported in September that 53.7% of their total bond applications were from first time buyers and that on average these buyers were putting down an 11% deposit on their new homes. So how many of these applicants for finance are successful? Ooba does provide some insight into this with their average initial decline ratio of 47.2%. Of these 28.9% manage to secure finance from another lender, which takes the effective approval ratio to 66.4%. This is up marginally from the 65.2% recorded in September 2012. FNB reported this month that their estimate of first time buyers as a percentage of all buyers in the market is currently 20%, which is significantly up on the low point of 12% in 2007 but down from the 24% of the last quarter. Employment growth figures slowed to almost zero in the 2^nd quarter and general economic growth has tapered off over the same period. The gradual slowdown in first time buyer activity can therefore be anticipated. For new large scale developments along the Dolphin Coast that have been servicing this market, such as Sheffield Manor Estate, this type of information is useful as it indicates what their pricing strategy should be – i.e. keep it aggressive and attractive.

(Author: Andreas Wassenaar, published in The Bugle, 23 Oct 2013)