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)