Interprovincial Migration Trends (The Bugle)

The migration of people between provinces and their property buying behavior is an interesting topic. The question of how one could reliably measure this migration on a macro-economic basis requires thoughtful interrogation. FNB have come up with a very smart proxy as a solution to this. Using reliable deeds office property transfer data they identify all purchases by individuals where there is a corresponding sale by the same individual within 12 months either side of the purchase. Most of these repeat buying transactions are within the same province, but a portion of these (18,7% in 2012) were in a province different to where the corresponding sale took place. It is this sample that is then used as the estimate for people migrating between provinces. Some holiday home purchases could interfere with this data set.  Migration by young professionals who may well be first time home buyers in their new adopted province or families moving to a new province having sold their home, but deciding to rent for a year prior to buying again, will not be measured in this pool of transactions, but it is sufficiently large and reliable to give us a very good idea of overall semi-gration flows. The overall growth in this level of inter-provincial repeat buyer migration in 2012 was 3,1%, down from the 4,8% recorded in 2011 which is in line with the recent economic slowdown and the resulting slowdown in labour mobility. 

What the research reveals is that the exodus of repeat buyers is relatively high in the smaller provinces. The Western Cape still has the lowest outflow of repeat buyers (only 12,9%) followed by Gauteng (16,2%), Eastern Cape (19,5%) and KZN (19,7%). But what about the inflows to each province? It is useful to consider the net in- or outflows to get a full picture of migration trends. When one considers the repeat buyers entering a province minus those departing, it was the Western Cape which has a large net inward migration of 6,7%. Gauteng had a small net outward migration rate of -0,7% of total repeat buying, KZN an outflow of -1,5% and the Eastern Cape a slightly higher outflow of -2,6%. The Western Cape has an apparent competitive advantage in the form of the lowest repeat buyers leaving the province and by far the strongest net inward migration rate from other provinces. The reasons provided are that the province’s economy is the 2^nd largest in South Africa after Gauteng, and Cape Town’s perceived high quality lifestyle compared to other South African cities. With net positive migration into the Western Cape, we can expect the prices of property in those highly desirable suburbs to continue to be bid upwards. Unfortunately we do not have the data for only the North Coast of KZN, but I suspect that our figures would rival those of the Western Cape. The proximity of the King Shaka international airport, the abundance of high quality secure gated estates and the beautiful coastline provide an attractive mix, and a value for money alternative to the Western Cape.

(Author: Andreas Wassenaar, published in The Bugle, 28th Aug 2013)

Property Market by Income Segment (The Bugle)

Seeff Dolphin Coast recently celebrated the successful transfer of the largest sale in Zimbali for 36 months. This was for a 1,037 sqm home situated on a 2,127 sqm site at a price of R20,5m. The only other single residential home sales (as opposed to bulk development land sales) to have been registered in Zimbali in the R20m to R30m price bracket over the four years and eight months since 1^st January 2009 were priced at R21m, R25,5m and R20m respectively. At a rate of sale of less than one per annum for properties priced within the R20m plus bracket, this does bring into perspective the difference in market activity across various price brackets. Whereas stock shortages of freehold homes priced at R2,5m are a reality along the Dolphin Coast, there is excess supply of homes available in the R15m and above bracket. We therefore have to as the question of how the property market has been behaving across the various price segments. 

FNB’s recently published report analyzing all transactions across four main market segments – Lower Income, Middle Income, Upper Income and High Net worth, provides clear insight in how the lower income market has outpaced the other segments in terms of price growth and supported the Middle Income market as people sell in the lower bracket in order to upgrade to a better home. Currently 22,25% (and growing) of sellers in the lower income bracket are selling in order to upgrade. The same statistic for the other income brackets is 16,25% for the middle income, 14,25% for the upper income and 15,50 for the high net worth bracket. This property ladder is one of the fundamental concepts in understanding how closely connected the various price categories are and how important it is for wealth creation that we have an active lower and middle income segment. If you are therefore a seller of a home priced at R1,5m you can expect significant demand from prospective purchasers who are upgrading from homes priced below R1m. Another important aspect is the improvement in the financial position of the lower income bracket. In the 2^nd quarter of 2009, 38% of sellers in the lower income bracket were selling in order to downscale due to financial pressures. By the 2^nd quarter of 2013 this had dropped (improved) to 17,5%. Homes in the lower and middle income brackets also appear to be priced more realistically than the higher levels. 

Considering the time on the market prior to a sale, as a proxy for price realism, we see that the lower and middle income segments at 12,2 weeks and 13,9 weeks have more accurately priced properties than the upper income and high net worth bracket where it takes 18,6 weeks and 19,8 weeks respectively for a property to trade.  For the purposes of FNB’s research the high net worth bracket is below the average R5m home price level. Our R20m-R30m Zimbali “ultra high net worth” bracket, as we have seen, trades, on average, at above the 52 weeks prior to a sale being achieved.

(Author: Andreas Wassenaar, published in The Bugle 21 Aug 2013)

Holiday Town Property Performance (The Bugle)

The holiday town residential property market came under significant pressure post the 2004-2006 boom years, and now seems to be indicating a return of some price stability according to FNB’s latest property barometer report. Holiday homes are non-essential by nature, which makes holiday home buying far more cyclical than primary residential home buying. The only property class that came under more pressure that holiday homes, was vacant land in holiday towns. In a falling or subdued market, vacant land represents a consistent monthly cost without any occupation benefit and with little scope for capital growth. It is therefore the first to be sold and experiences the largest price decline. The state of holiday town residential markets is a good gauge of the financial strength of the higher income household sector and the level of luxury demand in an economy. 

There has been a marked difference between the house price growth of primary residential home markets (measured by the six main metro areas in the country) and the holiday town home markets. For the 2^nd quarter of 2013 primary markets experienced growth of 6.3% while the holiday town house price index could only manage nominal growth of 1.7%. Once we factor in inflation to adjust these growth rates to real terms, we see holiday home prices in general declining. In real terms the downward correction in the holiday town price levels from the 4^th quarter 2007 peak to the 2^nd quarter of 2013 has been a cumulative -27.5%. The decline in the primary residential markets over the same period has only been 14.7%. So with holiday homes being almost a third cheaper than what they were in the boom times, is it now time to secure that property you have always dreamed of? As every good student of property economics should do, we look at the same price indices over a longer period of time – say from 1999 (almost 15 years) and we then see that there is very little difference in price performance between holiday homes (price growth of 396.2% over the period) and primary residential homes (price growth of 393.6%). So what can we expect in the near term? Primary residential markets will continue to outperform holiday home markets. Currently the estimated holiday property buying as a percentage of all buying is 2%, down from the 5% peak recorded in 2007. Primary residential buying is currently at 89% of all buying, higher than the 80% recorded in 2007. If we consider the volume of transactions recorded in holiday towns we see these are currently at 32% of the boom time peak. The volume of sales of primary residential markets is currently at 52% of the boom time peak. The final reason why primary residential homes will outperform holiday homes in the near term is the substantial increase in holding costs over the past few years in terms of municipal rates and charges. So for a destination like Ballito and the surrounding gated estates and suburbs, the migration to a higher percentage of primary residential homes is very good news for estate agents.

(Author: Andreas Wassenaar, published in The Bugle 14 Aug 2013)

Tenant Eviction Process (The Bugle)

With the rental market booming in Ballito, and the limited supply driving up the price, more and more property investors are being encouraged to buy-to-let. The national average of buying to let as a percentage of all property sales remains at 8%, which is historically low, but this is set to change over the next few years. For a Landlord one of the most important things to know is the legal eviction process. For property owners who elect to self manage their properties, without the assistance of a professional rental agency, many pitfalls can present themselves. Without a subscription to a national credit bureau, which records the date of every rental payment made by the tenant and updates their credit profile on a monthly basis with this information, property owners do not have the tools to provide sufficient leverage to ensure compliant rental payment behaviour. Our subscription to Tenant Profile Network provides this and is extremely effective in ensuring that our managed leases are all up to date. Should you however find yourself in a situation where eviction of a tenant is necessary then the following steps are required:

1. Place the tenant on terms according to the lease agreement by issuing a letter of demand and time frame for compliance or cancellation of the lease.
2. Once the lease is terminated through this initial process the notice of eviction can be served. A notice of eviction can be served by the Sheriff of the Court, by hand at the premises, which should always be chosen as the tenant’s domicilium in the lease agreement, or by means of registered post. At this point a negotiated settlement in terms of payments and departure time frames should be reached. It would be an extremely foolish tenant that tries to remain in residence after this stage.
3. The next step is the court application for eviction, served by the Sheriff on the occupant and on the relevant municipality. Court appearance dates are set and dates by which the occupant must file their opposing court papers, if they intend to oppose the eviction application, are confirmed. The occupant has to receive the court application papers at least 14 days before the court date.
4. The court appearance and application hearing follows with oral and written legal arguments presented by both parties.  Assuming the applicant is successful the Court will then through a Court Order provide the occupant sufficient time to vacate – ordinarily up to 1 month.
5. Should the tenant not abide by the Court Order to vacate within the period stipulated the Sheriff will then be authorized to forcefully remove the occupants, with the assistance of the police if required. The Sheriff could take up to 3 weeks to execute the eviction order.

The downside to the Landlord is the time frame the above process can take, which can be 2 - 3 months. What this means is that the standard 1 month damages deposit held as security on most leases is no longer good enough. We can expect most property owners to move towards 2 – 3 month deposits being insisted on. This places a higher cost on tenants and is the natural market response to legislation, which lengthens the process for a legal eviction.

(Author: Andreas Wassenaar, published in The Bugle, 7th August 2013)