Who is the South African Homeowner?
Picture a typical South African homeowner. What do they look like?
Absa’s in-depth research into this question reveals the evolving profile of the home loan customer is breaking old moulds, and shifting towards a more representative and dynamic profile. For the new picture, think women, singles, first-time buyers, digitally connected, and youth.
Absa’s Chief Risk Officer for the Home Loans division
“In South Africa, commercial mortgages as a proportion of total loans and advances have averaged just over 10% through 2020; this ratio has been stable and averaged just below 10% since the global financial crisis”
– Absa’s head of CPF business development and research Kgopotso Mathole.
Nombuso Sibeko
Data Sciences Manager,
Absa Home Loans
Kgopotso Mathole
Head of CPF Business Development and Research
This – plus some fascinating nuances of the profiles – necessitates fast-paced changes in the provision side of the property equation – providing homes, and providing home loans – that astute businesses must adapt to if they want to stay relevant to a changing market.
Paint by numbers
Undertaken in conjunction with a leading research and analytics firm, Absa’s research allows the bank to build up profiles of SA’s homebuyers and identify key themes in a changing homeownership eco-system. Collectively, these paint a more detailed picture of what’s driving (or getting in the way of) home sales locally, and helps professionals across the value chain prepare to better serve these customers.
For example, the continued interest in affordable housing, especially options located in the economic hubs, necessitates foresight and collaboration from diverse parties like city planners, construction firms, and bond originators, to ensure there is provision in the right areas, at the right price points, and with the required attributes.
Ewald Kellerman is Absa’s Chief Risk Officer for the Home Loans division. He says the purpose of this kind of research is not to exclude anyone on demographics, but to support Absa’s understanding so it can meet its ambition of housing the nation. “This includes strategic focus on financing more first-time buyers (both affordable housing customers and young professionals), investors (to promote creation and supply of rental stock), and repeat buyers,” Kellerman explains. Simply, the better we understand these buyers, the better we can serve them.
The future is female
One exciting revelation is the finding that more than half (56%) of South African property buyers are single, and of these, 72% are women – making single women the largest group of buyers in the country.
Source: Absa
This is in line with other industry research too. Data firm Lightstone, for example, found that some 72 000 single women purchased residential property in South Africa in 2019, and that single women have held the top category spot since 2016. This is especially curious in light of the gender pay gap that means South African men earn on average 64% more than women.
Absa’s data analysts dug into the deeds data to extract insights on how women are pulling themselves onto the property ladder despite the challenges. Muziwakhe Zim, Head of Data and Analytics at Absa Home Loans, says that typically women have a higher average age when purchasing property individually, go for a lower average purchase price than that of male buyers, and tend to purchase properties with smaller erf sizes on freehold properties.
“We have also observed that the proportion of women buyers has started increasing in sectional title properties, more than freehold properties – something that could be driven by both the gender pay gap and the potential need for more secure living spaces,” he adds.
Source: Absa
Youth market
Women’s average purchase age notwithstanding, the age of homebuyers has been trending down in recent years. This is a positive and inclusive trend as around 35% of the South African population is aged 15-34 years.
‘Young millennials’ is one of five subsets of homeownership profiles that the Absa research identifies, falling under the larger ‘singles’ set. This group is largely between 20 and 28 years of age, from across genders and racial groups. They tend to be new graduates, often living out of home for the first time, and renting with friends – and they can use these factors to their advantage, by buying with friends for example. Millennial investors can also buy their foothold into the market while still at home, living in multi-generational homes.
Source: Absa
This is, however, the kind of group most at sea with the home-buying process, those who the Absa research suggests will benefit most from creative lending models and a degree of “hand holding” that offers peace of mind upfront for nervous buyers, improves the tracking experience during, and has a humanistic offering from start to finish.
Rates for resilience
Despite their uncertainty, young buyers took the opportunity (created by low interest rates and prices) in droves in 2020. In fact, the Reserve Bank’s three percentage-point cut in the interest rates last year brought the prime lending rate to 7% – the lowest in some five decades.
Source: https://tradingeconomics.com/south-africa/bank-lending-rate
This is a big reason that South Africa’s property sector had an unexpectedly good year despite the hardships associated with the COVID-19 pandemic. After an initial crunch, the market showed remarkable strength. Seeff Property Group chair Samuel Seeff told the Financial Mail (FM) in December that “South Africans are buying property as if it’s a Black Friday sale” after they experienced an almost six-year high in turnover in October 2020. The rate cuts, the FM report continues, means that “home ownership [is] 30% more affordable than it was at the start of the year” and this sparked off what the publication called a “stampede” of first-time home buyers. Absa, too, reports that applications from first-time buyers increased by 51%.
The buy vs rent argument has really been challenged with the reduction in rates,” says Kellerman. “Many tenants have weighed up the pros and cons of owning, and find it much more affordable to buy a property. But many of them may only able to do so in the current interest rate environment.”
Cost conscious
Unfortunately, as we know, the COVID-19 pandemic was also the cause of many jobs and incomes lost. “Interestingly, the affected population could not be predicted by traditional risk factors, but rather the industry in which the customers found themselves at the time,” Kellerman says.
This is no small matter for a cost-conscious market like South Africa. As the Absa paper explains, “cost remains the underlying motivator behind most behaviour” and “high transfer fees and unexpected costs are the key barriers to property purchase”.
It may also be why many people with a property under their belt already are increasingly looking to DIY themselves into comfort, rather than moving. The Absa paper points out that this is making itself known in an increase in “larger scale DIY projects in the home” and sellers “rather renovating and restoring their homes”.
Digitally transformed
The question now is arguably which of the digital trends will outlive the pandemic, or – as Kellerman says – result in “permanent structural change in the way we live, work and play”. The trends include remote work, moving to holiday homes as permanent residences, and a preference for larger homes with working space, but all must still “prove themselves before we can call this the new normal”.
The profound shift to digital itself, though, is not in question – just how it manifests. Both renters and buyers have shown significant uptake of online tools in recent years, with the vast majority of both categories using realtor websites and property listing sites to find and assess potential new homes for themselves.
Source: Absa
Search giant Google is, unsurprisingly, the most used source of information for those looking to buy a home, but it is also just the first step of buying – the entirety of which can now, arguably, be completed online. Even today, and in South Africa with relatively low internet speeds, during peak lockdowns, digitisation in real estate enabled virtual home viewings and valuations, for example. (See Digital Adoption box below)
The effect of digital is not limited to how you find your home, but also extends these days to how and where you choose to live – as remote work is a more feasible option for a larger segment of the workforce, and hybrid working (a mix of at home and in the office) is expected to be the predominant model in the near future. “This could hold both risk and opportunities for the property market,” Kellerman says.
Stay calm and get connected
Finally, digital innovation is also changing the game for providers in the value chain. Virtual and remote viewings and valuations, increased online applications, and even building insurance are all being irrevocably changed in our increasingly connected world.
With the latter, smart geyser and fire sensors and the Internet of Things (IoT), Kellerman says, are the kinds of disruptors changing risk management herein.
“Absa Insurance is evolving with the Internet of Things (IoT),” he says, “We are in the process of identifying various solutions which will assist our customers in the future to improve risk management and provide better customer experience.”
Digital adoption in SA
Absa’s head of CPF Business Development and Research Kgopotso Mathole says that although digital adoption is speeding up, e-commerce penetration is still relatively low locally. Drawing from Euromonitor International research, Mathole says online retail in SA grew from R17.5bn in 2019 to R27.4bn in 2020, but “this still represents only 2.6% of nominal retail trade sales.”
“This level of penetration is still low when compared to developed markets such as the United Kingdom, Germany and the United States. In these countries, online retail is at double digit levels of 26%, 20% and 14%, respectively.”