Active Price Brackets (The Bugle)

The Dolphin Coast is buzzing with excitement as the summer holiday season is in full force, the sun has made a re-appearance and most of us are taking time out to be with family and friends over the Christmas period. Despite the warnings of economists and general manufacturing and mining having come under pressure in the second half of 2013 thereby depressing economic growth, the property market activity has accelerated and we as Seeff Dolphin Coast have enjoyed a 40% growth in the rand value of sales concluded in 2013 over the prior year. As a region Seeff KZN have grown 35% and nationally the Seeff group growth is 20% higher. Some of this growth is attributed to market share growth and some is general growth in the overall volume of transactions. As this surge in property buying seems counter to the underlying economic fundamentals of slower GDP growth, stringent criteria for mortgage finance, less disposable income and stubbornly high debt to disposable income ratios, we can only ascribe this activity to an overall equilibrium in the market where pricing of homes is matching the expectations of many buyers who have en masse decided that the market is what it is, and there is therefore no better time to buy than the present. 

Price escalation of residential properties on a national basis as measured by FNB as at November 2013 was recorded as 7,2% in nominal terms. In real terms (after adjusting for inflation) house price growth was recorded as being 1,5%. Is it important to have an understanding of inflation-adjusted growth in house prices? Actually it is, as a market in assets will take into account the relative value of the assets. Increased demand is determined by real changes in prices and since the peak in 2007, house prices have declined by 20.1% in real terms. This is significant and indicates that residential homes are offering good value. The nominal growth since the 2007 peak is only 14,7%. So with real prices down, and sentiment having improved significantly, it becomes an easy choice to make the decision to invest. The recovery has started in earnest across the lower price brackets. A shortage of homes priced below R2m is now a distinct reality and developers who are active within this market segment are seeing their product flying off the shelves. Our recent experience with a 219 sqm home priced at R1,690,000 had an offer on the table with two back-up offers in the event that the finance approval on the first offer was not presented within the time frame provided. No longer can buyers in this market segment take their time to shop around for finance options over an extended period and mortgage bond approval dates are strictly enforced by the sellers. 

The ripple effect is moving upwards and the price bracket from R2m to R5m is showing the same signs of increased buyer activity. New developments and approvals for new projects have lagged this revived activity and we can expect shortages to start to develop within the price brackets up the R7m. For sellers in the R10m plus price bracket the market remains subdued and pricing has to represent exceptional value before buyers in general are tempted to commit. For a US dollar based purchaser, our residential properties today are 50% cheaper than two years ago purely on the devaluation of the Rand exchange rate. Why this has not to date encouraged a lot more buying by foreigners is a little surprising and we can expect a lot more interest if the Rand remains at just over R10 to the dollar.

(Author: Andreas Wassenaar, published in The Bugle, 25 Dec 2013)