In the wake of the pandemic, let’s prioritise people

At the start of 2020, the headlines about COVID-19 occupied a small corner of my mind. By the first quarter, as I imagine was the case for most people around the world, they had taken centre stage. It has been a year that has challenged us in every sense – as organisations, within our families and societies, and as individuals. The big lesson that I’m taking away is to keep people front and centre in finding a way through tough times. For me, the silver lining of 2020 is a renewed appreciation for our partners at Absa Home Loans and an increased commitment to customer centricity.

Outlook for home loans

From a business perspective, it’s been nail-biting, with predictions of the economic impact of COVID-19 rivalling the Great Depression. The COVID-19 pandemic has had a profound impact on the residential property market. Prior to the outbreak of the Coronavirus, South Africa’s largest banks collectively extended around R11 billion per month in home loans.

Amidst necessary and widespread efforts to curb the spread of the disease, the Deeds Office closed temporarily, and no new loans were registered in April, taking its toll on estate agents in particular. Periodic re-closure remained a challenge throughout the various lockdown levels.

This meant that during hard lockdown we saw applications reduce by 71%. For every 10 applications that we were receiving at the beginning of the year, we only received three during lockdown. Nevertheless, the housing market has proven more resilient than initially expected.

Before the 2008 housing crisis, many owners were taking equity out of their home for expensive cars or other big purchases. That left them underwater on their mortgage when the economy crashed. Today’s homeowners have, for the most part, left their equity untouched, so a crash in the developed housing markets is therefore unlikely.

Here in South Africa, we have also seen a more discerning customer, from the response in taking up payment relief measure, to the market dynamics seen in the new applications we’ve been processing and in the market sentiment (as measured by the Absa Homeowners Sentiment Index).

Powerful partnerships

At Absa Home Loans, our ambition is to “House the Nation and Shape the Industry in a Meaningful Way” and we understand that this cannot be done alone.

We have such a privilege in what we do as an industry, because we get to give people the dignity of home ownership, provide an opportunity to create wealth or leave a legacy for their families.

Our strategic partnerships and engagements allow us to take stock and introspect as businesses and role-players in the industry, and to work together to achieve our goal.

The pandemic has given us new insights into the resilience and capacity for change of the everyday South African who aspires to home ownership and investment in residential property.

We have realised that while a home loan is a major part of the process for many, people don’t buy home loans: they invest in homes. Throughout the journey, we need to understand that and never lose sight of the reason that people are buying a home, because that is how we build an industry that supports their ambition.

We have had to change our assumptions around expected market behaviour and to be open to listening to what customers are telling us. We have begun to actively seek out the customer to understand where they are and what they need, and then partnering with people in the industry who can help to achieve those goals. We feel closer to our customers than ever before and hope that they will view us as a trusted partner in making their dreams come true.

Outlook for 2021 and beyond

Encouragingly, early signals point to a recovery in the property market. During June and July, the number of home loan applications exceeded pre-COVID numbers. Whether this trend can be sustained remains to be seen.

The market quickly recovered to pre-lockdown levels right at the beginning of lockdown level 3, which started in June, and, at their peak, applications were 52% ahead of Q1 levels. We continue to see applications coming in at these sustained levels, easily exceeding 30% of last year’s volumes (at time of writing).

But although there has been general positivity in the market following the lifting of hard lockdown restrictions, the asymmetrical geographic and customer segment performance continues to highlight the importance of highly developed local and customer insight that can uncover opportunities.

We’ve noted the entrance of first-time buyers that previously could not afford property. The change in economics for renters has also supported an acceleration in demand for properties priced at the lower end of the market. However, sellers at the upper end of the market are likely to take a discount on their selling price.

“Semigration” has also gained traction with so many more people working from home, prompting many consumers to seek out more lifestyle-friendly home options. People are configuring their homes differently too, adding working areas and prioritising connectivity, as well as things like yard space for children to play in and bigger living areas. The DIY and home renovation industries are enjoying a boom.

We believe some structural shifts may be here to stay. An international study conducted by Gartner suggests that over 80% of companies expect flexible working arrangements to continue post-COVID.

While it is probably too early to predict how remote working trends will impact the property market in the long run, early indications are that access to transport and proximity to commercial hubs will become less important and that location decisions may increasingly be driven by education, healthcare and lifestyle considerations. This may result in a surge in demand in areas further away from commercial hubs and smaller towns, provided the necessary infrastructure is in place.

The rate of urbanisation may slow or shift focus to specific sectors. Due to fewer opportunities in other countries, emigration selling may also reduce.

Where to from here?

There is still a lot of uncertainty in the home loans system, with concerns around the long-term economic impact of COVID-19 and the political outlook. Rising unemployment is also concerning, with South Africa shedding more than 2 million jobs during the second quarter of 2020 alone.

Economic projections suggest that real GDP will decline by at least 6.4% in 2020 putting businesses and consumers under pressure and possibly deterring otherwise willing buyers from entering the market.

On the bright side, the low interest rate cycle has driven positive sentiment around home ownership.

The interest rate cycle has also given a boost to sentiment for selling property, as respondents also indicated that it might be a better time to sell property while potential buyers have an affordability boost due to the low interest rate cycle.

While we believe that although interest rates have essentially reached the bottom of the cycle, we think they will remain at current levels until Q4 2021 where they will start gradually rising again. The rise, we believe, will be so gradual that interest rates will not have recovered to pre-lockdown levels by the end of 2023. My hope it that more South Africans have the opportunity to enter the housing market on the back of low interest rates.

Despite the uncertainty within our industry and through the world at the moment, I firmly believe that buying property remains a sound choice, particularly in the long run. As we head into 2021, I hope we will be able to use the lessons of the past year to help shape ourselves, our organisations and our nation in a meaningful way. Geoff Lee, Managing Executive, Absa Home Loans

Outlook for home loans

From a business perspective, it’s been nail-biting, with predictions of the economic impact of COVID-19 rivalling the Great Depression. The COVID-19 pandemic has had a profound impact on the residential property market. Prior to the outbreak of the Coronavirus, South Africa’s largest banks collectively extended around R11 billion per month in home loans.

Amidst necessary and widespread efforts to curb the spread of the disease, the Deeds Office closed temporarily, and no new loans were registered in April, taking its toll on estate agents in particular. Periodic re-closure remained a challenge throughout the various lockdown levels.

This meant that during hard lockdown we saw applications reduce by 71%. For every 10 applications that we were receiving at the beginning of the year, we only received three during lockdown. Nevertheless, the housing market has proven more resilient than initially expected.

Before the 2008 housing crisis, many owners were taking equity out of their home for expensive cars or other big purchases. That left them underwater on their mortgage when the economy crashed. Today’s homeowners have, for the most part, left their equity untouched, so a crash in the developed housing markets is therefore unlikely.

Here in South Africa, we have also seen a more discerning customer, from the response in taking up payment relief measure, to the market dynamics seen in the new applications we’ve been processing and in the market sentiment (as measured by the Absa Homeowners Sentiment Index).

Powerful partnerships

At Absa Home Loans, our ambition is to “House the Nation and Shape the Industry in a Meaningful Way” and we understand that this cannot be done alone.

We have such a privilege in what we do as an industry, because we get to give people the dignity of home ownership, provide an opportunity to create wealth or leave a legacy for their families.

Our strategic partnerships and engagements allow us to take stock and introspect as businesses and role-players in the industry, and to work together to achieve our goal.

The pandemic has given us new insights into the resilience and capacity for change of the everyday South African who aspires to home ownership and investment in residential property.

We have realised that while a home loan is a major part of the process for many, people don’t buy home loans: they invest in homes. Throughout the journey, we need to understand that and never lose sight of the reason that people are buying a home, because that is how we build an industry that supports their ambition.

We have had to change our assumptions around expected market behaviour and to be open to listening to what customers are telling us. We have begun to actively seek out the customer to understand where they are and what they need, and then partnering with people in the industry who can help to achieve those goals. We feel closer to our customers than ever before and hope that they will view us as a trusted partner in making their dreams come true.

Outlook for 2021 and beyond

Encouragingly, early signals point to a recovery in the property market. During June and July, the number of home loan applications exceeded pre-COVID numbers. Whether this trend can be sustained remains to be seen.

The market quickly recovered to pre-lockdown levels right at the beginning of lockdown level 3, which started in June, and, at their peak, applications were 52% ahead of Q1 levels. We continue to see applications coming in at these sustained levels, easily exceeding 30% of last year’s volumes (at time of writing).

But although there has been general positivity in the market following the lifting of hard lockdown restrictions, the asymmetrical geographic and customer segment performance continues to highlight the importance of highly developed local and customer insight that can uncover opportunities.

We’ve noted the entrance of first-time buyers that previously could not afford property. The change in economics for renters has also supported an acceleration in demand for properties priced at the lower end of the market. However, sellers at the upper end of the market are likely to take a discount on their selling price.

“Semigration” has also gained traction with so many more people working from home, prompting many consumers to seek out more lifestyle-friendly home options. People are configuring their homes differently too, adding working areas and prioritising connectivity, as well as things like yard space for children to play in and bigger living areas. The DIY and home renovation industries are enjoying a boom.

We believe some structural shifts may be here to stay. An international study conducted by Gartner suggests that over 80% of companies expect flexible working arrangements to continue post-COVID.

While it is probably too early to predict how remote working trends will impact the property market in the long run, early indications are that access to transport and proximity to commercial hubs will become less important and that location decisions may increasingly be driven by education, healthcare and lifestyle considerations. This may result in a surge in demand in areas further away from commercial hubs and smaller towns, provided the necessary infrastructure is in place.

The rate of urbanisation may slow or shift focus to specific sectors. Due to fewer opportunities in other countries, emigration selling may also reduce.

Where to from here?

There is still a lot of uncertainty in the home loans system, with concerns around the long-term economic impact of COVID-19 and the political outlook. Rising unemployment is also concerning, with South Africa shedding more than 2 million jobs during the second quarter of 2020 alone.

Economic projections suggest that real GDP will decline by at least 6.4% in 2020 putting businesses and consumers under pressure and possibly deterring otherwise willing buyers from entering the market.

On the bright side, the low interest rate cycle has driven positive sentiment around home ownership.

The interest rate cycle has also given a boost to sentiment for selling property, as respondents also indicated that it might be a better time to sell property while potential buyers have an affordability boost due to the low interest rate cycle.

While we believe that although interest rates have essentially reached the bottom of the cycle, we think they will remain at current levels until Q4 2021 where they will start gradually rising again. The rise, we believe, will be so gradual that interest rates will not have recovered to pre-lockdown levels by the end of 2023. My hope it that more South Africans have the opportunity to enter the housing market on the back of low interest rates.

Despite the uncertainty within our industry and through the world at the moment, I firmly believe that buying property remains a sound choice, particularly in the long run. As we head into 2021, I hope we will be able to use the lessons of the past year to help shape ourselves, our organisations and our nation in a meaningful way. Geoff Lee, Managing Executive, Absa Home Loans