Activity Across Market Segments (The Bugle)

Which segment of the market is currently most active? This is an interesting question and the answer has changed significantly over the past year. If we consider FNB’s most recent estate agent survey report, and divide the market by income or price segment, labeling the Lower Income level at an average price of R885,000 , the Middle Income level at an average price of R1,37m, the Upper Income segment at an average price of R2,66m and the High Net Worth segment at an average price of R3,7m, we see that although the Middle Income is currently strongest, this is only by a small margin. There has been a significant narrowing of the gap with the Lower and Middle Income segments slowing slightly and the Upper and High Net Worth income segments improving significantly. Depending on what area or suburb of the country you may find yourself in, the definition of Upper Income and High Net Worth may vary. Zimbali has an entry level of R3,5m and High Net Worth purchases would be considered in the R30m plus bracket. If you were analysing sales data from the Atlantic Seaboard in Cape Town, these brackets would be even higher. Nevertheless, the general trends are similar and our experience on the ground as estate agents re-enforces exactly this improvement in activity experienced in the Upper and High Net Worth pricing segments. 

The recorded reasons for selling provide clues as to what is supporting the Middle Income level. We see that amongst the Lower Income level, as many as 26% of all sellers are selling to upgrade. These sellers are therefore typically buying in the income bracket directly above them, therefore boosting the Middle Income segment. The number of sellers who cite downscaling due to financial pressure as a reason for them selling is reasonably steady around the 16% for the lower brackets and around 13% for the higher brackets. This is a significant change from a few years ago when the Lower Income bracket peaked at 38% in the second quarter of 2009 as an estimate of the seller’s downscaling due to financial pressure. The High Net Worth category is typically least affected by the cyclical nature of an economy and the number of seller’s looking to downscale due to financial pressure has remained reasonably constant with a gradual downward trend evident. 

So what can we expect going forward? On the one hand we have a growing middle income class in the country and first time home-buyers dominating the lower income bracket. We also know that as of January 2014 we have entered into our interest rate hiking cycle, which is expected to continue through 2014 peaking in 2015. Because the lower brackets of the property market are more interest rate sensitive, being highly credit dependent, we should anticipate that as the cost of money increases, the lower brackets could begin to show signs of slowing. For developers who have been gearing up to service the market between R800,000 and R1,200,000 they may find that special attention is required to provide a competitive financing package. Downscaling due to life stage is a reason to sell that is far more prevalent in the higher income brackets and remains the single largest reason for selling. When it comes to price realism the lower income brackets still have an advantage. Measured by the average time the property is on the market, the Lower and Middle Income brackets indicate reported figures of 12,4 and 12,2 weeks respectively. The Upper Income and High Net Worth brackets recorded 18,2 and 18,4 weeks respectively.

Published in The Bugle, 23 April 2014, Author: Andreas Wassenaar