Estate Agent Quarterly Survey Results (The Bugle)

Every quarter FNB published an exceptionally detailed estate agent survey, which provides a remarkably accurate assessment of the property market and provides interesting statistics to support the collective views of South Africa’s estate agents. The recently published second quarter report does indicate a marginal softening in residential activity, which can be attributed to seasonal factors. Buying a home in Cape Town or Gauteng is just not the same in winter, but for us in KZN it hardly makes a difference. 

The home buying confidence indicator is a measure of how estate agents see the short term (next quarter). Currently expectations are down from the first quarter but on the whole the majority expect buying activity to remain stable. The three most significant factors that impact on these expectations are seasonality, stock issues and pricing/affordability. Being part of a large national estate agency we get to understand first hand what the Gauteng and Cape based offices regard as market constraints and these are often very different to what we have experienced along the North Coast. Whereas the shortage of available stock is something an estate agent in Cape Town or Sandton has had to deal with, we have had a complete oversupply of available properties for the past few years. Only in our local rental market is the stock issue a major limitation. Certain price brackets of properties – such as freehold homes priced at R2m within a secure gated estate such as Palm Lakes, are beginning to experience supply constraints and pricing of these options have been edging upwards. 

Pricing of high-end properties remained stubbornly high for several years, but so far this year we have seen a downward adjustment of seller’s expectations and a few notable properties in the price bracket between R10m and R20m have traded. The emerging stock shortages have not as yet been able to reduce the average speed at which property sales are taking place. The estimated time that a property remains on the market prior to selling is a good gauge of the balance between demand and supply at the prevailing price levels. The second quarter 2013 national measurement is 17 weeks and 1 day. Since 2011 this statistic has moved sideways, fluctuating between 15 and 17 weeks. This is very different from the 8-week average experienced during the 2005/6 periods. As soon as you analyze the higher end price brackets, the time on the market rises significantly. It is not unusual for a R20m Zimbali home to be on the market for over 2 years. The percentage of properties sold at less than their asking price is instructive in terms of the level of pricing realism in the market. The second quarter figure was recorded at 90%, up from the 89% recorded in the first quarter, which is the highest it has been since 2004 when just over 30% of properties traded at less than their asking price. The average drop in price to secure a sale has remained at 10% for the past five quarters.

(Author: Andreas Wassenaar, published in The Bugle, 31 July 2013)

Reasons for Selling Residential Property (The Bugle)

What are the reasons provided by South African homeowners for selling their residential properties? This is an interesting question and the answers can assist us in understanding trends within a property market. The most comprehensive answer to this question is provided by FNB’s regular national estate agent survey, the results of which have been published recently. 

The eight main categories that this survey provides for to describe the reasons for selling and the percentage applicable for the second quarter of 2013, include: 1. Downscaling due to financial pressure (18%), 2. Downscaling with life stage (21%), 3. Emigrating (3%), 4. Relocating within SA (8%), 5. Upgrading (19%), 6. Moving for safety and security reasons (10%), 7. Change in family structure (12%) and 8. Moving closer to work or amenities (8%). The highest category of downscaling with life stage are sellers who are getting older and are therefore looking for something smaller with their children typically having left home. This gives some insight into the impact of an ageing middle and upper income group and how important this group of seller’s are to the overall market.  This should also be of interest to developers who are currently providing or planning to provide retirement living opportunities. The KZN north coast is somewhat limited at the moment with this type of product offering and we can expect to see new retirement living villages or residential opportunities coming to the market within the near future. 

The “downscaling due to financial pressure” reason remains significant but the general trend for this reason to sell has been downward, and at 18% is well off the peak of 34% in the second quarter of 2009. In addition, of these sellers the percentage who are looking to rent versus buy after selling has changed, with 60% now looking to re-buy and only 40% looking to rent. This is a big improvement from the second quarter of 2011 when 51% were looking to rent rather than buy again, and 49% were looking to buy again. 

The other key selling group are those looking to upgrade, currently estimated at 19%, which exceeds the percentage of sellers downscaling due to financial pressure. Since 2008 the “downscalers due to financial pressure” have consistently exceeded those sellers planning on upgrading and it is only in 2013 that this relative difference has been reversed. This provides further evidence of an improving property market. Emigration selling is always of interest and it has come down significantly from its peak of 20% in the third quarter of 2008 to its current level of 3%. The poor global economic conditions, especially in those countries which have been typical destinations for South African emigrants, have no doubt had an influence and it remains to be seen how emigration selling responds once economic activity and work prospects in those countries improve.

(Author: Andreas Wassenaar, published in The Bugle, 24th July 2013)

North Coast KZN House Price Growth (The Bugle)

Last week ABSA published its House Price Index review, which includes the June figures. It is always useful to consider the periodically published reports by South Africa’s two largest mortgage lenders – ABSA with 28% market share and Standard Bank with 33% market share. It was not long ago when ABSA actually dominated the mortgage market with a market share of just over 30%, while Standard used to have a market share of just over 20%. How things have changed. What I really like about ABSA’s reports is that they divide the index into small (80-140sqm), medium (141–220sqm) and large houses (221-400sqm). The nominal house price growth of ABSA properties within these categories grew by 5,6%, 6,8% and 12,3% to June 2013 respectively. Interestingly the small and medium home price growth has come under pressure with falling growth rates and the larger house category has grown stronger but seems to be nearing a peak. They also report on the luxury segment of the market which they define as homes priced between R3,8m and R13,8m.  The luxury market experienced 4% price deflation in the first quarter of 2013 after price deflation of 1,9% in the fourth quarter of 2012. This translated into real price deflation of 9,2% in the first quarter after adjusting for the effect of inflation. This statistic is of particular interest for our markets such as Zimbali and Simbithi, and confirms our on-the-ground understanding that prices of many high-end homes are down. Without exception we have seen every transaction in the higher price brackets trade at pricing off the initial listing price. Sellers are however taking note of this trade and their expectations are adjusting to the realities of the market. The volumes are therefore up even though pricing on higher-end properties may be down.

ABSA’s geographical analysis is excellent as it divides the figures in terms of province as well as coastal areas. The highest coastal region growth outside of KZN came from the Cape Peninsula and False Bay with 6,5% quarter-on-quarter growth as at the first quarter of 2013. The year-on-year figure was 14%. Other coastal regions were not able to exceed 4% in quarterly growth. KZN is the coastal hotspot at the moment with ABSA nominal house price growth of 15,5% on a quarterly basis and 34,1% on an annual basis. Even more surprisingly the KZN South Coast actually experienced price deflation of -5,7%. All the growth was therefore attributed to the North Coast growth in nominal house prices of 17,1% on a quarterly basis, and 47,9% on an annual year-on-year basis. This is phenomenal and provides some insight into the level of migration of people to the North Coast, mainly from Gauteng, which we have been talking about for a while.

(Author: Andreas Wassenaar, published in The Bugle, 17 July 2013)

Mortgage Advances Growth in South Africa (The Bugle)

So you took and advance on your homes’ access bond and put it all on outsider Heavy Metal in the main Durban July race this past week-end. Had you had this foresight, you could now buy that home of your dreams and would be one of the few residential homebuyers who do not raise mortgage finance to assist them with their purchase. For the rest of us, the ability to raise finance is key to being able to own your home. If you would like to be able to predict the growth in house prices then start by focusing on what is happening to the growth in mortgage advances. Home finance is the fuel that drives the property market.

To get a handle on the size of household mortgage advances in South Africa consider that total household credit balances are currently R1,3 trillion. Of this amount approximately R798,2 billion is represented by residential household mortgages. Total mortgages in the country, including commercial mortgages, amount to R1,092 trillion.  When you understand that 73% of all mortgages are residential household mortgages you begin to understand the importance of this pool of credit to our residential property market. The latest published figures are available to the end of April 2013 and show that mortgage growth for household residential properties grew by 2,7% year-on-year. This is low, especially considering that other components of overall credit such as household unsecured credit (comprising general loans, credit card debt and overdrafts) grew by 25,4%. 

Individuals can only take on so much debt – either short-term loans and credit card debt to pay for current expenditure or long-term debt in the form of a mortgage loan to finance a property, which grows in value over time. The rapid growth in short-term unsecured loans is to an extent crowding out the more desirable long-term mortgage loans. Even though household mortgages still account for 60,3% of all household credit balances this proportion has been steadily falling and was 64,1% just over a year ago in May 2012. Make no mistake that the banks are lending money – just not on mortgages to the extent that would ignite the property market. 

Ooba, as South Africa’s major player in the mortgage origination business, reports that the average deposit as a percentage of the purchase price is currently 16,9%, up from 15,1% a year ago. This indicates how important it is for a purchaser to have a deposit when buying a home and hoping to raise finance. As a general rule of thumb, be prepared to have a 20% cash deposit if you are hoping to secure the best terms on your mortgage. The average initial decline ratio (first bank decline) is currently 48,5%. Shopping around with an originator is smart as the ratio of applications declined by one bank but approved by another is 25,8%. Ooba’s effective approval ratio is therefore 64%. When looking to raise mortgage finance get the best possible advice from people in the industry who know and understand the criteria imposed by the banks

(Author: Andreas Wassenaar, published in The Bugle, 10 July 2013)

Seaward Estates Review (The Bugle)

Seaward Estates, an 81,3 ha gated community located on our Seeff office doorstep, in the heart of Ballito, has long been a high demand residential address – and for good reason. It provides excellent value in the R1,5m to R3m price bracket and is located within walking distance of many of Ballito’s main amenities – the Alberlito Hospital, Ashton International College and the three main Ballito shopping centres. The total stock of tradable properties, within Seaward consists of 126 sectional title units (18,72%) and 547 freehold properties (81,28%) including vacant land. Of these 673 properties we see a consistent turnover of 10% per annum. This is spot on in terms of our general rule of thumb, which we use when estimating the number of sales that can be expected to take place every year in a given market. 

An analysis of the age profile of recent buyers and sellers within Seaward (over the past 12 months), demonstrates a demographic shift towards younger property owners. In the 18 to 35 year old category, recent buyers represented as much as 32,81% while recent sellers represented 15,69% within the same age group. The 37 to 49 year old age group was represented by 32,81% of buyers and 37,25% of sellers. The 50 to 64 year old age group was represented by 26,56% of recent buyers and 27,45% of recent sellers. The over 65 year old age group was represented by 7,81% of recent buyers and 19,61% of recent sellers. While the middle two age groups described above remain relatively equally matched between buyers and sellers, the younger age group is starting to replace the older age group. This means more single first time homebuyers and more young families for Seaward.

To provide some insight into the state of the Seaward property market I considered a sample of 173 registered transfers between 1^st January 2011 and 30^th June 2013, representing a gross sales value of R240,5m. Of these 27 are sectional title units (R38,5m) and 146 are freehold properties (R202m). As Seaward is dominated by freehold properties we would expect the bulk of the trade to be in freehold homes. It is interesting to note the trade per calendar year. In 2011 there were 73 registered transactions, according to our deeds office search, with a total value of R97,3m and an average value of R1,332,313. For 2012, 72 registered transactions were recorded with a total value of R98,3m and an average price of R1,365,476. For 2013 to date and in terms of the data provided, we have seen 28 transactions to the value of R44,9m with an average price of R1,603,750. This jump in average price is interesting and could indicate a recovery of pricing for Seaward homes. The highest sale within our sample was the R3m paid for 1 Shani Close, a well-located freehold home situated on a 1,391 sqm site overlooking a green-belt.

(Author: Andreas Wassenaar, published in The Bugle, 31 June 2013)