Residential property market snapshot
Category Property 24 - Industry News
Estate agents surveyed in the FNB Property Barometer Q2 2013 report reveals that the residential property market is strengthening, but the agent’s future expectations regarding the near term improvement in the market are moderating.
Since the 2008/9 recession, the residential market has had two noticeable growth periods with the most impressive one being off a very weak base which took place in 2009/2010 on the back of a post-recession economic growth recovery along with a rapid decline in interest rates at the time, explains FNB household and consumer sector strategist, John Loos.
He says 2011 saw a lull, with year-on-year growth in the Agent Activity Rating going back into decline. Then, from early-2012 until the present time, the market got something of a “second wind” although the rate of growth in activity off a now higher base has not been nearly as impressive as back in 2009/10.
Near term outlook
According to estate agents surveyed in the second quarter, 56 percent expected activity to remain the same in the next three months, while 23 percent expected an improvement and 21 percent expected a decrease in activity.
Residential stock shortages
Loos says when asking agents for the factors influencing their near term expectations, stock issues (the largest portion pointing to stock constraints as opposed to an oversupply of stock) once again came as the most common factor in Q2 2013 survey.
Stock issues have been noticeably more significant over the past few quarters than previously, with more of the agents with stock issues citing shortages as opposed to oversupplies, suggesting that gradually over time demand is making gains on residential supply, points out Loos.
Property pricing
The second most important factor relates to pricing and affordability, which 13 percent of agents make mention of.
“Of these agents, there is almost an equal split between those claiming that prices are more realistic and affordable versus those pointing to unrealistic prices and buyers not being able to afford such prices.”
Loos says one indicator of where the market is in terms of seller pricing realism, or otherwise put, the balance between demand and supply at prevailing price levels, is the estimated average time that properties remain on the market prior to sale.
From a first quarter estimate of 17 weeks and 2 days, the estimated average time on the market in the second quarter 2013 survey remained almost unchanged at 17 weeks and 1 day.
“While month to month fluctuations can be a little volatile, the broad trend in average time on the market has been virtually sideways since early-2011, with average time fluctuating near to the 4 month mark.”
Fluctuating between 15 and 17 weeks, the average time on the market still remains a lengthy one, as compared to the below-2 month level back in 2005/6, and is probably not yet conducive to sustained real house price growth, he says.
Along with lengthy average time on the market, there has been a slight further increase in the percentage of sellers being required to drop their asking price to make a sale, a second indicator of pricing realism, or in this case perhaps lack thereof.
“The percentage of properties sold at less than asking price was 90 percent in Q2 2013, from 89 percent in Q1 2013,” says Loos.
Agents estimate that the average drop price has remained stable for the past five quarters at -10 percent.
While some agents note unrealistic pricing in the market, others are seeing sellers who are pricing their properties right especially in the luxury homes market.
According to the survey, homeowners sell their properties in order to downscale due to financial pressure (18 percent), downscaling with life stage (21 percent), emigrating (3 percent), relocating within SA (8 percent), upgrading (19 percent), moving for safety and security reasons (10 percent), change in family structure (12 percent), and moving to be closer to amenities (8 percent)
According to Ronald Ennik, founder and chief executive officer of luxury homes marketer, Ennik Estates, diehard sellers who persist in waiting for the market to return to ‘normal’ will wait in vain. So, too, will buyers who stubbornly hang on for that bargain basement deal to come along.
“It’s not going to happen, the reality is that current conditions are the norm – and will remain so for some time…even though home prices are increasing marginally in real terms,” points out Ennik.
But there are sellers who price realistically in line with market conditions as seen in the agency’s recent sales at or within 5 percent of asking price in the northern suburbs of Johannesburg and Sandton of homes priced between R5 million to R8 million plus.
“This is a sign of acceptance by buyers and sellers of upper end homes that current market conditions will persist for the foreseeable future,” says Ennik.
He points out that it is also a welcome indication that more sellers in this market are allowing themselves to be guided by the expert advice of the best people available to give it – their appointed agent.
Buying and selling a home will always be an emotional experience – driven by self-interest.
It is therefore all the more encouraging that top end buyers and sellers alike are doing their homework meticulously these days – and closing the price perception gap in the process, according to Ennik.
First-time buyers
First-time buyer demand tends to be more cyclical than the total market because many young buyers have more flexibility than established households, being able to delay their own formation of a new household by remaining in their parent’s home for longer during tougher property and economic times, or by often remaining in a rental property for longer.
Loos says it appears that first-time home buying expressed as a percentage of overall buying, has been settling down after a significant rise through 2009 to 2011.
In Q2 2013, first-time buyers were estimated to make up 22 percent of total buying, down from 24 percent in the preceding quarter.
In the Western Cape, the suburb of Buh-Rein Estate in Tygerberg comprising 3 241 apartments, 133 freehold homes and 137 townhouses has seen a huge number of buyers being first-timers.
These properties are priced from R359 900 for a one bedroom unit, R429 900 for two bedroom units, R569 900 for three bedroom units, R784 900 for townhouses and R1 099 900 for freehold houses (with securing deposits from as little as R5 000).
According to Riaan Roos, chief executive officer of MSP Developments, the estate is attracting a large number of first-time and investor buyers.
“The main reason for this is that it’s a brand new and well-monitored, secure lifestyle estate and pricing options also make it possible to accommodate various types of buyers, from young couples to families.”
Reasons for selling
Agents continue to point to financial stress-related selling, at the same time, a high number selling in order to upgrade is also seen in the market by those households with stable finances.
According to the survey, homeowners sell their properties in order to downscale due to financial pressure (18 percent), downscaling with life stage (21 percent), emigrating (3 percent), relocating within SA (8 percent), upgrading (19 percent), moving for safety and security reasons (10 percent), change in family structure (12 percent) and moving to be closer to amenities (8 percent).
While the need to “downscale due to financial pressure” and the desire to “upgrade homes” are key drivers of residential property selling, they are not the biggest drivers, rather, it is the Oldies who drive residential selling.
In Q2 2013, the percentage of those selling due to financial pressure remained significant at 18 percent of total selling, from 15 percent in Q1 2013.
“This percentage should serve as an ongoing caution as to the financial frailty of a significant number of households, because 18 percent while better than the 2009 peak of 34 percent, remains high given the currently abnormally low level of interest rates,” notes Loos.
The percentage of households who are financially solid and selling in order to upgrade rose further in Q2 2013 to 19 percent of total sellers exceeding the percentage of sellers downscaling, according to the report. – Denise Mhlanga
Author: Denise Mhlanga
