Looking for Love? Buy a House (The Bugle)

If you are a young professional and looking for love, buy a house. This advise, published in Ooba’s Oct 2012 newsletter results from a recent on-line survey conducted by PropertyGenie.co.za. The poll showed that 75% of respondents view a potential partner as more attractive if he or she owns a home. Only 18% said they did not have a preference, while 4% said partners who rent are more attractive and only 3% said they would prefer a partner who still lives with his or her parents. 

So what will it cost to own your own love nest? One of the best starter home buys currently on the market is a spacious two bedroom, two bathroom apartment at Sunbird Way in Hilltop Estate. It has a huge 46 sqm lock-up garage and the apartment, with patio measures 98 sqm. Taking this property as an example to highlight the difference between the cost of renting vs. buying, we can establish the size of the deposit required, so as to balance total rental cost, after deducting levies and rates, to the total ownership cost. This property would rent at R7,000 p.m. and this would include municipal rates, the body corporate levy and the estate levy. It would exclude the utilities and these amounts are therefore excluded from the comparison. Assuming you are able to secure the property at a favourable purchase price of R1,160,000, the total transaction costs involved in this purchase would amount to R40,000, which would include transfer duty of R20,000, conveyancing attorneys fees of R13,500, and deeds office fees, sectional title levy clearance certificates etc. of approx. R6,500. Your monthly levies would be R1,140 p.m. as the estate levy and R775 p.m. as the body corporate levy. The annual municipal rates on a property valued at R1,160,000 would amount to R5,304.68 or an effective R442 p.m. The monthly levies and rates therefore total R2,357 and should be deducted from the R7,000 p.m. rental option to get a net R4,643 p.m. 

This amount must then be used to ascertain how much mortgage bond this would cover and in turn how much of a cash deposit would be required as a purchase option to compare directly to the rental option from a cash flow point of view. A mortgage bond with a 20 year term and interest rate of 8,5% p.a. in the amount of R535,000 would require a monthly installment of R4,643. The cash deposit required would therefore be R625,000 plus the R40,000 required to cover the total transaction costs. Bond registration costs would be additional. With cash on hand of R665,000, the purchase option of this property is therefore identical to the rental option, and it then makes perfect sense to buy rather than rent. It does remain cheaper to rent the same property than buy it, if you do not have a substantial cash deposit. The best advise to take from this is then to save as much as possible towards a deposit to get to a place where you are not paying off somebody else’s bond.

For details on this great opportunity view: Hilltop Estate - Best Buy!

(Author: Andreas Wassenaar, Published in The Bugle 31Oct2012)

Reasons for Selling - What this tells us (The Bugle)

The reasons for selling, at any given time within our property market cycle, can provide us with an insightful perspective of where the property market is at and where it is heading. FNB measure this through their quarterly estate agent survey, the latest findings of which were published on 19^th October 2012. 

The categories of reasons for selling are expressed as a percentage of sales and ranked according to the third quarter figures: (1) Downscaling with life stage – 21%; (2) Downscaling due to financial pressure – 20%; (3) Upgrading – 16%; (4) Change in family structure – 15%; (5) Moving for safety and security reasons – 11%; (6) Moving closer to work or amenities – 8%; (7) Relocating within SA – 7%; (8) Emigrating – 3%.

Selling in order to downscale due to financial pressure remains stubbornly high at 20% but is significantly lower than its peak of 34% in the 2^nd quarter 2009. The positive aspect is that this means that these households are actively looking to reduce their debt exposure and rebuild their balance sheets. This does mean less expenditure in the short term but a healthier outlook from a more financially secure base in the medium to longer term. As many as 16% of sellers are looking to upgrade, which is significantly above the 2008/9 recession lows of around 7%. The net difference between those downgrading vs. those upgrading has narrowed substantially, which is positive and reassuring.

The reasons for selling, furthermore varies according to the income category of the seller’s, as measured by the average house price. High Net Worth individuals record lower percentages of selling in order to downgrade (currently 18%) than the middle to lower income sellers (currently 22-23%), but the gap has narrowed significantly since 2009 when the lower income segment peaked at 38%. 

We also note from the data that those sellers that are selling in order to downscale are becoming more inclined to buy something else as opposed to renting By the 3^rd quarter of 2012, 59% of these sellers were looking to buy a cheaper property, while only 41% were looking to rent as an alternate to ownership. It is interesting to note that Emigration selling is currently at a relatively low 3%. Foreign buyers of domestic residential property has shifted somewhat from the traditional Europe and UK based buyers, to African buyers, now estimated to be 21% of total foreign home buyers in SA. This is not surprising considering the weak Eurozone and UK economic performance.

(Author: Andreas Wassenaar, Published in The Bugle, 24Oct2012)

Sentiment and the Property Market (The Bugle)

Sentiment is that intangible but very powerful force that can have a significant impact on the buying decisions people make on a daily basis and on our economy as a whole. How striking miners at a platinum mine can impact the market for residential property along the Dolphin Coast, is an interesting question and may be quicker and more direct than you can imagine. 

The Lonmin owned Marikana mine strike started on 10^th August 2012 and the resultant clashes with police left 34 workers dead and extensive CNN coverage. The contagion to other platinum and gold mines resulted and even 20,000 truck drivers went on strike, resulting in fuel shortages in some parts of the country. This labour unrest has directly resulted in the downgrading of South African sovereign debt, firstly by the rating agency Moody’s and then on 12 October 2012 by Standard & Poor. The perception of political, economic and fiscal uncertainty creates this negative sentiment and impacts on the South African government’s credit profile. Moody’s also downgraded a spectrum of South African corporate investment instruments, including several South African residential mortgage-backed securities. As the risk profile of these securities increases so does the cost or interest payable on them. 

The Rand has weakened in response to the rating agency downgrades and because South Africa is a small open economy, the cost of our imports filters through into our inflation rate. The prospect of higher inflation makes the prospect of lower mortgage interest rates less likely. South African GDP growth is now expected to be no more than 2,5% for the year, significantly below the 3,2% reported at the end of last year. 

Much is happening on the political front with the lead up to the ANC’s National Conference scheduled for December 2012 at which the presidential candidate for the 2014 elections will be designated. For many there is a lot at stake. One of the great lessons we were taught as University students by our Business Finance professor, was to ask the questions as how events in one part of the country and world impact other parts. Sometimes the answers are obvious, other times less so. In financial markets information is everything and the speed at which it is processed and taken advantage of, can be the difference between profits or losses. 

As a property owner looking to sell along the Dolphin Coast my recommended response would be: (1) Is my property priced correctly? If not, review this with deeds office transfer data in one hand and advice from a property professional you trust on the other; (2) Have I presented my property in the showroom condition expected by a buyer? There is a lot of competition out there. Your home may require a little TLC to give it a lift and make it more appealing; (3) Work in partnership with your chosen estate agent – make access and viewings easy, keep the property neat and tidy, provide as much information as you can on the property; and (4) When presented with an offer, take some time to carefully consider it before responding. You will not believe how many sales are lost over small differences price.

(Author: Andreas Wassenaar, Published in The Bugle, 17Oct2012)

Property Focus: 2012 Review as at Oct 2012 (The Ballito Mag)

The beginning of the fourth quarter is a good time to take stock and reflect on the performance of the property market for the year to date and to get a sense of where we can reasonably expect the market to go over the next six months. If you live in the greater Ballito area you will understand how stressful it can be to try and get things done before the end of year shut down. The influx of visitors during December this year can be expected to be similar to last year – extreme. Judging by our holiday bookings of the Zimbali rental portfolio we operate, we are already at capacity, and receive daily enquiries for holiday accommodation over the peak December period.

Zimbali Coastal Resort and Simbithi Eco-Estate are the two largest estates within our area and represent a significant segment of the market. Together these estates have over 3,000 properties covering an area of over 800ha. A snapshot of the sales activity to date as measured by actual registered transfers indicates that Zimbali is slightly ahead if measured by total value of transactions and Simbithi is ahead if measured by the number of transactions. For the 2012 year to date there have been 39 registered sales within Zimbali to the value of R179,4m. These are split between 11 sectional title transfers to the value of R45,3m and 28 freehold transfers to the value of R134,1m. The average value of the Zimbali transactions is currently R6,779,718. An age analysis of recent (last 12 months) Zimbali purchasers reveals that 12% are aged over 65; 36% are aged between 50 and 64; 42% are aged between 36 and 49; and 10% are aged 18-35. For Simbithi there have been 114 registered sales for the year to date with a total value of R162,2m. These sales can be split into the 35 sectional title transfers to the value of R72,9m and the 79 freehold transfers (mostly vacant land) to the value of R89,3m. The average value of a Simbithi transaction is currently R3,118,014. It is sometimes remarked that Zimbali property owners are generally much older than Simbithi property owners. However, when we perform a similar age analysis for recent Simbithi property purchasers, we not that 4% are aged over 65; 31% are aged between 50 and 64; 46% are aged between 36 and 49; and 19% are aged 18-35. The difference is therefore far more marginal than generally expected.

The October 2012 edition of the published FNB Property Barometer provides evidence of a mild increase in the residential property demand activity indicator in the third quarter, which rose from the previous quarter’s 5.87 to 6.11 (on a scale of 1 to 10). Two of the most important indicators of demand in a residential property market are the length of time that a property remains on the market before it sells and the percentage of sellers required to drop their asking price in order to make a sale. Both of these statistics have “improved” (declined) over the past quarter. The average time a property remains on the marked (on a national basis) has declined from 17 weeks and 4 days in the 2^nd quarter to 15 weeks and 6 days in the 3^rd quarter. The percentage of sellers accepting lower than the asking prices have declined from 87% in the previous quarter to 84% in the 3^rd quarter. The average percentage drop in price has remained unchanged at -10%, which remains an improvement on the -13% recorded at the end of 2011. The length of time that a property remains on the market, using historical measures as an average benchmark during a healthy market, is two months. A market in which 84% of all sellers have to drop their asking price to secure a sale is, based on historical data, very high. So on both these key measures of pricing realism, we can argue that we have some way to go before returning to a healthy market. We constantly advise our clients that realistic market pricing and the clear offer of value is the key to achieving a sale in the current market.

Our macroeconomic status is generally positive, despite the fragile global economy and unresolved European debt crisis. The prime interest rate at 8.5% is the lowest it has been in four decades. Consumer Price Inflation is 5% (Aug 2012). Producer Price Inflation is down to 5.1% (Aug 2012). GDP growth is 2.7% (second quarter 2012). An analysis of the FNB Home Price Index shows that real house prices (adjusted for CPI Inflation) were -15.8% lower in August 2012 when compared to the “boom-period” peak reached in February 2008. In nominal terms prices were +14.2% higher as at August 2012. If we measure house price growth from 2000, real prices were still 64% higher as at August 2012, and nominal prices were +225.4% higher in September 2012. As a seller it therefore often depends when you bought a property, on how realistic your price may be and your resultant chances of securing a sale. As month-on-month house prices tend to track the country’s business cycle fairly well, the SARB Leading Business Cycle Indicator is a key statistic for property professionals to watch. The recently published indicator for July 2012 showed a +0.8% growth on the previous month, which followed four consecutive months of decline. This reversal of direction will hopefully translate into a more sustained increase in demand for residential property.

Another good indicator of whether market conditions are improving is the level of first time homebuyers in the market. As this segment of the market is very sensitive to both the price and availability of mortgage debt finance, as market conditions improve, the level of first time buying improves in a cyclical manner. The recorded level of first time buying rose in the 3^rd quarter to 26% of total buying, which was up from the 20% recorded in the 2^nd quarter and reinforces the upward trend of this important indicator.

The seasonality component of home buying is important and given the positive economic indicators with the warming of the weather as we head into our summer selling months, we have a strong sense of renewed optimism. Things are looking up!

(Author: Andreas Wassenaar, Published in The Ballito Mag, Oct2012)

Seaward Estates Update (The Bugle)

Seaward Estates, situated in the heart of Ballito, bordering Zimbali Coastal Resort to the south and covering a geographical area of approx. 100ha is a popular and convenient gated community, which trades in a very affordable price bracket. It is a similar size to Brettenwood Coastal Estate and twice the size of Dunkirk Estate. At capacity it will host 800 homes, most of which have been developed at this stage. The average price of transactions within Seaward over the past 12 months is R1,624,670, which is very comparable to neighbouring Avon Hills in Ballito with an average value of R1,655,556 or Palm Lakes Estate which has a current average valuation of R1,367,299.

It is interesting to note that the demographics of Seaward property owners are shifting to younger people. The age analysis of recent (over the past 12 months) buyers and sellers indicates that as many as 28,81% of new buyers at Seaward are aged between 18-35; 42,37% are aged 36-49; 25,42% are aged 50-64 and only 3,4% are aged above 65. The recent sellers age analysis however indicates that 14,9% of sellers are aged above 65; 23,4% are aged 50-64; 46,81% are aged 36-49 and 14,89% (half as many as the buyers) are aged between 18-35. Seaward is a great affordable option for young families wanting to be close to all the Ballito amenities. 

If we consider the 203 registered property transfers that occurred within Seaward from 1^st January 2010 to 7^th October 2012, eliminating all those transfers between development companies or between family members, we get a sense of what this market is like. The 40 sectional title scheme transfers over this period ranged in price from R700,000 to R1,900,000 with the top rate per square meter being R10,109. The 163 freehold transfers over the same period ranged in price from R196,320 (vacant land) to R2,7m home between Seaforth Drive and San Jerez street with a good outlook over the 22ha conservation area. Demand for homes within Seaward is sensitive to pricing and homes which are over-priced will typically not attract any interest as there are many similar comparatives at correct market pricing. 

A new development recently launched within Seaward is to be known as San Bernadino. It will consist of 13 homes with a typical configuration of 3 bedrooms, 2 bathrooms and a double garage, with sizes ranging from 152 sqm to 167 sqm, and pricing from R1,750,000 to R1,870,000 including vat (a nice savings on transfer duty). For a brand new option below the R2m threshold this type of opportunity should be at the top of your shopping list.

(Author: Andreas Wassenaar, Published in The Bugle, 10Oct2012)