The pulse of South Africa's residential property industry is beating slower these days, courtesy of the prolonged rate hiking cycle. It's palpable in the subdued growth of house prices and the declining volume of home-loan applications, with would-be buyers choosing to delay their purchase until rates begin to drop.
Source: Supplied. Jackie Smith, head of Buyers Trust.
However, Jackie Smith, head of Buyers Trust, a safe and cybersecure bank-hosted deposit solution for homebuyers, believes that there is a silver lining to the downturn in homebuying activity.
“The upside of more homebuyers choosing to delay their purchase is that they’re using this time to save for a higher deposit, recognising the long-term financial benefits of this decision.”
Smith references the latest Q1 ‘24 oobarometer from ooba Home Loans, which revealed that 47% of first-time homebuyers put down a deposit in Q1 ‘24, as compared to 43% in Q1 ‘23.
“First-time homebuyers deposits are also getting bigger – now at an average of 10.9% of the purchase price, exceeding the recommended minimum of 10%,” she says.
“The deposits being put down by repeat homebuyers are not as sizeable as those of new homebuyers, at an average of 7.3% of the purchase price for Q1 ‘24. However, when you start looking at deposit behaviour per province, interesting trends start to emerge.”
KwaZulu-Natal leads in deposits
Deposits in the ‘Garden Province’ have skyrocketed, taking KwaZulu-Natal from the province with the fifth highest average deposits in Q1 2023 to the highest in 2024, at an average size of 12.8% of the purchase price. Following closely behind is the Eastern Cape, with an average deposit size of 11.2% and Mpumalanga, with an average deposit size of 10.6%.
“It’s interesting to note that income growth from home-loan applicants in KwaZulu-Natal and the Eastern Cape has vastly outpaced House Price Inflation (HPI) in these regions. With more affordable properties on the market, affluent homebuyers can afford to finance a greater portion of their purchase upfront,” says Smith.
The opposite is true in Mpumalanga, where HPI is recorded at 9.5% in Q1 ‘24 and average applicant incomes have grown by a mere 6.4% during the same period.
“Lower income applicants are viewed as being higher risk by lenders and may be required to prove that they can afford to put down a sizeable deposit in order to be approved for a home loan.”
Here, Smith emphasises that not only do deposits give homebuyers greater equity in their home immediately, but they also increase the chances of home-loan approval and securing a more favourable interest rate from the banks.
“By putting down a deposit, homebuyers demonstrate their ability to save and finance a portion of their purchase, lowering their risk profile in the eyes of the banks and giving the buyer more leverage.”
Regions below national deposit
Smith reveals the regions where deposits are lower than the national average of 7.3%. These are Johannesburg & West Rand, the Western Cape, Limpopo and Pretoria & Northwest.
“With the Western Cape boasting the second highest House Price Inflation (HPI) in the country, as well as the highest average rental costs, it’s no wonder that cash-strapped buyers in the region may have very little left over to put towards a deposit, at an average of 5.6% of the purchase price, down 2.2% year-on-year,” she shares.
“However, the biggest year-on-year decline in average deposit sizes belongs to Limpopo, where deposits went from a respectable 12.8% of the purchase price in Q1 ‘23 to the current average of 5.4%.
"This whopping -7.4% decline could be attributed to homebuyers in the region buying more expensive homes, as home-loan applicant income growth in Limpopo is the second highest in the country. The more expensive the home, the smaller percentage of the deposit in relation to the purchase price,” Smith adds.
The title of ‘lowest deposits in South Africa’ goes to the Pretoria & Northwest region, where the average deposit size comprises 4.5% of the purchase price. “This figure is startlingly low but still represents a 2.2% increase from the previous year.”
More deposit options available
Smith says that while the increased prioritisation of deposits by South African homebuyers is a positive development, many are unaware that they have options regarding how the deposit is paid over.
“Previously, it was a legal requirement for property practitioners (estate agents) to operate a trust account, as an option for homebuyers to host their deposit until the transaction had been concluded. In 2022, amendments to the Property Practitioners Act did away with this requirement, giving homebuyers the option to entrust their deposit to the estate agent, conveyancing attorney or third-party platform of their choice.”
Increased flexibility with regards to where homebuyers choose to host their deposits enables them to opt for an offering like Buyers Trust, which promises the highest level of cybersecurity measures, a necessity in an era where cybercrime is rife and where South Africa has been dubbed "The Cybercrime Capital of Africa".
“Buyers Trust works by creating an investment account with one of the country’s major banks in the homebuyer’s name, to which the buyer can directly transfer the deposit, always giving them 100% visibility of their deposit. It also issues a bank guarantee to the transferring attorney at no cost to the buyer,” Smith concludes.
