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)