I found this artical on Property 24 website and thought it may be of some interest to you. Enjoy.
04 Oct 2012
In the past, a home on auction would probably have belonged to a distressed seller, someone who had fallen on hard financial times and had his or her home repossessed by the bank.
Today, however, more and more estate agencies offer auctions as an option to their sellers, as an addition to the more traditional estate agency sale. Buyers in a rush to sell their properties may find the idea of an auction more appealing, as properties move more quickly selling this way.
Heidi Franck, Group COO at One Property Holdings outlines how to decide on the best option for your property.
The residential property market is slow and due to the current economic climate, there is little growth.
That said, sellers will still sell their properties, but it is taking much longer than previously, depending on its value. “Houses that are priced below R 1 million will sell more quickly, as there are more buyers in this market than for the more expensive properties,” Franck explains.
To this end, buyers in a rush to sell their properties may find the idea of an auction more appealing, as properties move more quickly selling this way. Most sales that take place on auction do not have conditions or ‘subject to’ clauses, Franck says. Buyers at auctions are required to put down a deposit and have been pre-approved for a bond by their banks prior to bidding, so the sale on auction is unlikely to fall through due to the inability of the seller to qualify for a bond.
Moreover, it frees the seller from dealing with buyers who are not serious - if they make a bid on the house, they generally have their ducks in a row and mean business.
On the downside, commissions charged by auctioneers are usually higher than those of estate agents. This is due to the intensity of the specific marketing that is done around an auction, says Franck.
“While an estate agent is able to place an advert in the paper, bringing in a pool of buyers that they can then refer to, as well as all the other properties on their books, an auctioneer’s marketing has to be more targeted – and this comes at a premium."
That said, the buyers that arrive at the auction have specifically chosen to bid on your house alone, says Franck, and there is a greater chance that they will commit to a sale if successful, than people who have simply popped in to see a show day and like what they see.
On the other hand, when going with an estate agent, there is the potential to get a higher price for the property, she says, which is mainly due to the fact that estate agents are usually area focused and have an intimate understanding of their specific market.
"Optimal market knowledge together with the incentive of a higher commission that results from achieving a higher sales price will inevitably drive a more lucrative sale.”
According to Marc Zlotnick, Managing Director of Forsite, there are positives and negatives to both methods. “Auctions are quicker processes, but the commissions are higher and the agent area expertise may not be as good.
"Traditional estate agency sales take longer, buyers are messier to qualify but the agents are more negotiable and the parties feel as if they have been more participative in the deal.”
At the end, however, true market value will prevail – because property is bought and sold when a willing buyer and a willing seller agree on a price in an open market.
This Artical was brought to you buy Property 24
Tuesday, September 17, 2013
Tuesday, September 10, 2013
House Prices overpriced by 20 Percent by Property 24
House Prices Over Priced by 20 Percent
By Property 24
02 Sep 2013
By Property 24
02 Sep 2013
While some estate agents report house price increase in some areas, others are of the opinion that residential property in South Africa is 20 percent overvalued.
According to property economist, Erwin Rode, home prices are overpriced by 20 percent because in real terms, house prices haven’t been growing either.
Last year, Rode said house prices are 25 percent overvalued with no vigorous growth expected.
You can also read Are SA house prices really overvalued? and House price growth in South Africa.
He says houses are more sensitive to interest rates than commercial and industrial properties.
Looking at the medium-term prospects for house prices, Rode says growth over the next five years will be below inflation because of various reasons.
Firstly, he says in real terms, house prices are very high, townhouse property developers are active once again (as high prices still make new developments viable) and consumers are still under financial stress.
He points out that interest rates will rise because of Basel 111 impact and the interest rate cycle.
Furthermore, Rode says banks' increased aversion will continue.
What does this all mean then for someone looking to buy property?
According to Rode, renting is better than buying except if one is buying with cash.
He says letting a house currently is superior to buying for own use when one takes a five year view.
The table below illustrates his point.
Slow growth
According to the FNB House Price Index, house prices showed a slight acceleration in its year-on-year growth rate (y/y) from 6.3 percent in July to 6.4 percent in August.
The report notes that the average house price growth of between 6 and 7 percent should not be seen as “strong” given where the general inflation rate is.
Rode says this is not sustainable growth, noting growth of unsecured credit yet mortgage credit remains low, which means if housing finance is not available, this depresses house prices.
According to FNB, if one looks at house price growth since after the 2008/9 recession, one sees “mini-surges” in growth.
One was around 2010, in reaction to big interest rate cutting through 2009, and the second from late-2011 to date after a short lull.
The report reveals that the second mini-surge, has been far more sustained, despite demand growth actually being far more significant back in 2009/10 at the time of the first post-recession surge.
That the second mini price “surge” has been more sustained than the first one is reflective of better market fundamentals this time around.
Gradual demand growth has slowly been mopping up the oversupplies (helped by very low levels of new building activity), household financial stress has gradually been reduced, and periods of real (adjusted for consumer price inflation) house price decline have slowly made house prices more realistic, explains John Loos, FNB household and property strategist.
Buying property
First-time buyers who are still saving and searching for their perfect property may well have missed the bottom of the market cycle now, but that does not mean that they should give up on the prospect of homeownership, says Jan Davel, managing director of RealNet.
What it means is that these buyers should accelerate their home buying plans or risk having to pay a great deal more to get into the property market in a year or two.
“The bottom of any market is that theoretical period when the lowest home prices and lowest mortgage rates supposedly intersect, and we are past that point in most parts of the country now, because property prices have started rising in real terms,” he notes.
However, Davel points out that values are still well off the highs experienced in the last property boom, while home loan interest rates are still at historic lows, providing buyers with a home financing opportunity right now that is unlikely to occur very often in their lifetimes.
According to Absa data, the monthly repayment on a R1 million bond is around 39 percent lower now than it was at the end of the boom in December 2008, thanks to the fact that the “standard” home loan interest rate has dropped from 15.5 percent to 8.5 percent since then.
“First-time buyers looking at a bond of around R500 000 will have a monthly repayment of R4 339 compared to the R7 170 it would have been five years ago,” explains Davel.
He says buyers will also need a household income of around R14 500 to qualify for the bond now, as opposed to the R23 900 they would have needed then (assuming, of course, that this income is not completely absorbed by other debt repayments and living expenses).
If interest rates rose again, a rise in the standard home loan rate of just one percentage point to 9.5 percent would boost the minimum monthly repayment on a R500 000 bond to R4 661 – and the minimum household income required to qualify for that bond to more than R15 500, as an example, he says.
Davel points out that if property prices rise by 5 percent in the next 12 months, first-time buyers will need even bigger deposits, bigger bonds – and bigger household incomes – to purchase the properties they could have bought this year.
A R500 000 bond is likely to become a R525 000 bond, for example, and at an interest rate of 9.5 percent, that would push the monthly bond repayment up to R4 894.
Selling property
According to Berry Everitt, managing director of the Chas Everitt International property group, the decision to sell a property should never just be about trying to time things in order to get the highest price.
Property owners also need to think about the ‘opportunity costs’ of staying on in a home they no longer want or which no longer meets their needs.
As an example, Everitt explains that if a property owner waits to sell until prices rise again, the price of the next home they buy will probably also be higher, and they also run the risk of home loan rates rising in the meanwhile.
In that case, they would most likely not only have to put any additional amount they made on their sale into the purchase of their new home, but also have to deal with higher monthly repayments than they had anticipated.
“If their reason for wanting to sell is to move to a home or area that would better suit their needs, hanging on to get a better price will probably also mean giving up on the shorter commute, the better school, or the change of lifestyle they were hoping for.”
Everitt points out that they might decide to pursue their goals anyway and just rent out their old house while waiting for prices to rise, but lenders might not be too keen on them carrying two home loans (even if the repayments on one are covered by the rent) and they will also need to consider the cost of maintaining two properties and paying two sets of rates and taxes.
“Sellers planning to sell need to take a view on the prospects of the property market in the next two years as well as consider that rising prices assist many owners who have been stuck in a “negative equity” situation since the market crashed – and who are probably more than ready to put their homes on sale now.”
According to Everitt, this will increase the supply of available homes and slow down house price growth even if demand stays at its current high level.
New developments will further increase inventory and demand is also likely to show a decline when interest rates start to rise again.
He adds that property owners with equity in existing homes, should sell sooner rather than later, and secure a new home at current prices and interest rates. – Denise Mhlanga
According to property economist, Erwin Rode, home prices are overpriced by 20 percent because in real terms, house prices haven’t been growing either.
Last year, Rode said house prices are 25 percent overvalued with no vigorous growth expected.
You can also read Are SA house prices really overvalued? and House price growth in South Africa.
He says houses are more sensitive to interest rates than commercial and industrial properties.
Looking at the medium-term prospects for house prices, Rode says growth over the next five years will be below inflation because of various reasons.
Firstly, he says in real terms, house prices are very high, townhouse property developers are active once again (as high prices still make new developments viable) and consumers are still under financial stress.
He points out that interest rates will rise because of Basel 111 impact and the interest rate cycle.
Furthermore, Rode says banks' increased aversion will continue.
What does this all mean then for someone looking to buy property?
According to Rode, renting is better than buying except if one is buying with cash.
He says letting a house currently is superior to buying for own use when one takes a five year view.
The table below illustrates his point.
| Buying a house worth R1m | Renting a house worth R1m | ||
| 100% equity | 100% bond | Rent outflow | |
| Net present value of outflows (adjusting for time value for money) | -R278 003 | -R487 749 | -R288 167 |
Slow growth
According to the FNB House Price Index, house prices showed a slight acceleration in its year-on-year growth rate (y/y) from 6.3 percent in July to 6.4 percent in August.
The report notes that the average house price growth of between 6 and 7 percent should not be seen as “strong” given where the general inflation rate is.
Rode says this is not sustainable growth, noting growth of unsecured credit yet mortgage credit remains low, which means if housing finance is not available, this depresses house prices.
According to FNB, if one looks at house price growth since after the 2008/9 recession, one sees “mini-surges” in growth.
As an example, Everitt explains that if a property owner waits to sell until prices rise again, the price of the next home they buy will probably also be higher, and they also run the risk of home loan rates rising in the meanwhile.
The report reveals that the second mini-surge, has been far more sustained, despite demand growth actually being far more significant back in 2009/10 at the time of the first post-recession surge.
That the second mini price “surge” has been more sustained than the first one is reflective of better market fundamentals this time around.
Gradual demand growth has slowly been mopping up the oversupplies (helped by very low levels of new building activity), household financial stress has gradually been reduced, and periods of real (adjusted for consumer price inflation) house price decline have slowly made house prices more realistic, explains John Loos, FNB household and property strategist.
Buying property
First-time buyers who are still saving and searching for their perfect property may well have missed the bottom of the market cycle now, but that does not mean that they should give up on the prospect of homeownership, says Jan Davel, managing director of RealNet.
What it means is that these buyers should accelerate their home buying plans or risk having to pay a great deal more to get into the property market in a year or two.
“The bottom of any market is that theoretical period when the lowest home prices and lowest mortgage rates supposedly intersect, and we are past that point in most parts of the country now, because property prices have started rising in real terms,” he notes.
However, Davel points out that values are still well off the highs experienced in the last property boom, while home loan interest rates are still at historic lows, providing buyers with a home financing opportunity right now that is unlikely to occur very often in their lifetimes.
According to Absa data, the monthly repayment on a R1 million bond is around 39 percent lower now than it was at the end of the boom in December 2008, thanks to the fact that the “standard” home loan interest rate has dropped from 15.5 percent to 8.5 percent since then.
“First-time buyers looking at a bond of around R500 000 will have a monthly repayment of R4 339 compared to the R7 170 it would have been five years ago,” explains Davel.
Rode says this is not sustainable growth, noting growth of unsecured credit yet mortgage credit remains low, which means if housing finance is not available, this depresses house prices.
If interest rates rose again, a rise in the standard home loan rate of just one percentage point to 9.5 percent would boost the minimum monthly repayment on a R500 000 bond to R4 661 – and the minimum household income required to qualify for that bond to more than R15 500, as an example, he says.
Davel points out that if property prices rise by 5 percent in the next 12 months, first-time buyers will need even bigger deposits, bigger bonds – and bigger household incomes – to purchase the properties they could have bought this year.
A R500 000 bond is likely to become a R525 000 bond, for example, and at an interest rate of 9.5 percent, that would push the monthly bond repayment up to R4 894.
Selling property
According to Berry Everitt, managing director of the Chas Everitt International property group, the decision to sell a property should never just be about trying to time things in order to get the highest price.
Property owners also need to think about the ‘opportunity costs’ of staying on in a home they no longer want or which no longer meets their needs.
As an example, Everitt explains that if a property owner waits to sell until prices rise again, the price of the next home they buy will probably also be higher, and they also run the risk of home loan rates rising in the meanwhile.
First-time buyers who are still saving and searching for their perfect property may well have missed the bottom of the market cycle now, but that does not mean that they should give up on the prospect of homeownership, says Jan Davel, managing director of RealNet.
“If their reason for wanting to sell is to move to a home or area that would better suit their needs, hanging on to get a better price will probably also mean giving up on the shorter commute, the better school, or the change of lifestyle they were hoping for.”
Everitt points out that they might decide to pursue their goals anyway and just rent out their old house while waiting for prices to rise, but lenders might not be too keen on them carrying two home loans (even if the repayments on one are covered by the rent) and they will also need to consider the cost of maintaining two properties and paying two sets of rates and taxes.
“Sellers planning to sell need to take a view on the prospects of the property market in the next two years as well as consider that rising prices assist many owners who have been stuck in a “negative equity” situation since the market crashed – and who are probably more than ready to put their homes on sale now.”
According to Everitt, this will increase the supply of available homes and slow down house price growth even if demand stays at its current high level.
New developments will further increase inventory and demand is also likely to show a decline when interest rates start to rise again.
He adds that property owners with equity in existing homes, should sell sooner rather than later, and secure a new home at current prices and interest rates. – Denise Mhlanga
Why Auction Your Property Part 6
Firstly before I get onto my next part of the property auction story I would like to appologise to all who read my blog for not posting for the last two weeks. I want to thank you for your loyalty and support.
Now for the next step in the story
Specialized Marketing Program
What makes auction marketing different to that of estate agent marketing?
Ok this is going to sound probably unfair for the seller and possibly make the seller want to use estate agents more than auctioneers. But read on before you make that decision. Let me see if I can convince you.
When auctioning any thing from antiques, art, cars or property there is usualy a marketing fee that the seller has to pay. It is normaly a limited cost and the only risk the seller has. Remember when selling a property at auction the seller does not pay commission. The costs for the marketing differs from auction house to auction house. Some auction houses will tailor make a marketing package to suite your pocket and your property. These costs don't normally go over R10 000.00. This would be on a multi property auction. If the seller chooses to have an individual package where the auctioneers will auction the proeprty on its own the costs can go upto about R15 000.00.
Now you may think that the marketing fee is expensive. But think of it in this way.
The seller pays the marketing fee of R10 000.00. The property sees a global market, a market that it has never seen before. With the potential of an overseas indvidual buying the property. The marketing is "in your face". It is an active campaign. The property is then sold at auction and the seller walks away with the price they wanted and saving 10s or even 100s of thousand rand.
Does R10 000.00 seem so bad now?????
Auction marketing out does any estate agency advertising by a mile or more. Becuase the advertising does not say "For Sale", there are avenues that auctioneers can use that estate agents cannot. Such as Street lamp marketing. What this is, is A1 boards with the property and auction details on it. These boards are tied onto street lamp poles in and around the area of the property being sold.
Just the word "Auction" attracts a lot more buyers and the mentality they think they are getting a bargain, but what is really happening is that they are buying a property at the market related price.
The marketing also consists of internet websites such as Property 24, Private Property, The Auctioneer and many others. Most of these sites have gone global. This is where foriegn investment and interest comes in. Then the auctioneer will have their own web site such as Dales Bros Auctioneers.
Then there is the media. Media such as newspapers and magazines which are published weekly and daily. These aren't always the best forms of marketing as they are expensive and have a shelf life of about 48 hours. However they do work.
Well I have run out things to tell you about the marketing of auctioned proeprties. If i have anything else to say I will certainly put it in.
Thanks for reading
Mornay
Now for the next step in the story
Specialized Marketing Program
What makes auction marketing different to that of estate agent marketing?
Ok this is going to sound probably unfair for the seller and possibly make the seller want to use estate agents more than auctioneers. But read on before you make that decision. Let me see if I can convince you.
When auctioning any thing from antiques, art, cars or property there is usualy a marketing fee that the seller has to pay. It is normaly a limited cost and the only risk the seller has. Remember when selling a property at auction the seller does not pay commission. The costs for the marketing differs from auction house to auction house. Some auction houses will tailor make a marketing package to suite your pocket and your property. These costs don't normally go over R10 000.00. This would be on a multi property auction. If the seller chooses to have an individual package where the auctioneers will auction the proeprty on its own the costs can go upto about R15 000.00.
Now you may think that the marketing fee is expensive. But think of it in this way.
The seller pays the marketing fee of R10 000.00. The property sees a global market, a market that it has never seen before. With the potential of an overseas indvidual buying the property. The marketing is "in your face". It is an active campaign. The property is then sold at auction and the seller walks away with the price they wanted and saving 10s or even 100s of thousand rand.
Does R10 000.00 seem so bad now?????
Auction marketing out does any estate agency advertising by a mile or more. Becuase the advertising does not say "For Sale", there are avenues that auctioneers can use that estate agents cannot. Such as Street lamp marketing. What this is, is A1 boards with the property and auction details on it. These boards are tied onto street lamp poles in and around the area of the property being sold.
Just the word "Auction" attracts a lot more buyers and the mentality they think they are getting a bargain, but what is really happening is that they are buying a property at the market related price.
The marketing also consists of internet websites such as Property 24, Private Property, The Auctioneer and many others. Most of these sites have gone global. This is where foriegn investment and interest comes in. Then the auctioneer will have their own web site such as Dales Bros Auctioneers.
Then there is the media. Media such as newspapers and magazines which are published weekly and daily. These aren't always the best forms of marketing as they are expensive and have a shelf life of about 48 hours. However they do work.
Well I have run out things to tell you about the marketing of auctioned proeprties. If i have anything else to say I will certainly put it in.
Thanks for reading
Mornay
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