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
Showing posts with label Property 24. Show all posts
Showing posts with label Property 24. Show all posts
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
Wednesday, August 28, 2013
Property News from Property 24
I read this artical on the property 24 Website.
Worth a read. It is long but worth it.
Affordability and house price growth
26 Aug 2013
Worth a read. It is long but worth it.
Affordability and house price growth
26 Aug 2013
Housing affordability, as measured by the ratios of house prices and mortgage repayments to household disposable income, levelled out towards the end of 2012 and early 2013, but remained largely favourable compared with a few years ago.
This was the net result of trends in house price and disposable income growth, and the mortgage interest rate remaining unchanged since mid-2012, currently at a 40 year low of 8.5 percent per annum, according to the Absa Housing Review Q2 2013.
The report reveals that despite low mortgage interest rate, many households’ ability to take advantage of the favourable trends in housing affordability is still affected by factors such as employment, income, savings, living costs, debt levels, as well as credit-risk profiles (as reflected by the state of consumer credit records), the National Credit Act and banks’ lending criteria in the case of mortgage loan applications for buying homes.
Writing in the report, Jacques du Toit, Absa Home Loans property analyst, says a downward/upward trend in the abovementioned two housing affordability ratios implies that house prices and mortgage repayments are rising at a slower/faster pace than household disposable income.
The result is that housing is in effect becoming more/less affordable, he says.
According to ooba statistics, while many still battle to obtain home loan finance, they are seeing growth in first-time buyers with 53 percent of home loan applications being first-time buyers.
The value of new home loans approved through ooba in July was up 27 percent on July 2012 and from January to July 2013, ooba’s approvals were up 24 percent over the same period in 2012 and up 227 percent over the corresponding period in 2009.
Rhys Dyer, chief executive officer of ooba says there is renewed confidence in the market and home buyers have more access to credit for home loans, aided by record low-interest rates.
The average deposit recorded was up 16 percent y/y and 6.6 percent month-on-month to 14.6 percent of the purchase price while the average approved bond size was 4.1 percent higher y/y.
According ooba, the initial bank decline ratio dropped by 0.7 percent y/y – an average of 47.3 percent in July – while the ratio of applications declined by one lender, granted by another increased by 2.3 percent y/y to 29.9 percent.
“Home buyers are assured a higher probability of an approved loan if they apply to more than one bank, a service that bond originators such as ooba provide for free,” says Dyer.
He says their approval rate was 66.8 percent in July and 1.5 percent higher y/y.
House price growth
Absa notes that nominal y/y house price growth in the middle-segment of the market (homes measuring 80 to 400 square metres and priced up to R3.8 million in 2013) increased further in the second quarter of the year, but lower price growth was evident in some middle-segment categories.
“Although remaining in positive territory, lower nominal y/y price growth occurred in the category for affordable housing in Q2 2013 from Q1 2013, whereas price growth in the luxury segment turned positive in Q2 2013 after price deflation in the first quarter.
The nominal price of a property refers to the price at which it was valued or transacted on the open market, i.e. the market price, selling or purchase price.
Du Toit explains that the real price of a property is the nominal price adjusted for the effect of inflation, and is calculated to determine if the value of a property has increased at a rate of above or below the inflation rate.
In addition to the nominal price, real price trends and growth are important from an investment point of view.
House price trends continued to be a reflection of property market conditions and related factors, which are affected by a combination of macroeconomic developments, the state of household finances and the level of consumer confidence.
Affordable housing
The second quarter of 2013 saw the average nominal price growth of affordable housing (homes measuring 40 to 79 square metres and priced up to R515 000 in 2013) continuing its gradual downward trend of the past three quarters to 3.6 percent y/y since peaking at around 7 percent in Q3 2012.
In real terms prices in the affordable segment dropped by 2 percent y/y and the average price of a home in the affordable segment of the market was R345 600 in Q2 2013.
Middle-segment housing
Y/y growth in the middle segment of the market (homes measuring 80 to 400 square metres and priced at R3.8 million or less in 2013) was 12 percent in Q2 2013 from 10.4 percent in the first quarter.
This brought the average price of a middle-segment home to about R1 162 500, and despite further improvement in y/y price growth up to the second quarter, growth has moderated in some categories in this segment as a result of base effects and monthly price growth slowing down since mid-2012.
The following price changes occurred in the three middle-segment categories in the first and second quarters of 2013:
Small houses (80 to 140 square metres and up to R3.8 million): Q1 (nominal 14.5 percent y/y and real 8.3 percent y/y) and Q2 (nominal (8.1 percent y/y and real 2.3 percent y/y).
Medium-sized houses (141 to 220 square metres up to R3.8 million): Q1 (nominal 9.6 percent y/y and real 3.7 percent) and Q2 (nominal 7.5 percent y/y and real 1.7 percent y/y).
Large houses (221 to 400 square metres up to R3.8 million): Q1: (nominal 7.7 percent y/y and real 1.8 percent y/y) and Q2 (nominal 11.8 percent y/y and real 5.7 percent y/y).
Luxury housing
In the segment of luxury housing (homes priced at between R3.8 million and R13.8 million in 2013), nominal price inflation of 6.5% y/y was recorded in Q2 2013 after price deflation occurred in the preceding two quarters.
The average price of a luxury home came to R5 172 800 in the second quarter noting that as the sample size of this category of housing is relatively small, a number of transactions of a higher value compared with previous quarters could have contributed to the strong price growth in the second quarter.
Regional house prices
House price growth at a regional level performed relatively strongly in a number of geographical areas in Q2 2013 on both a quarter-on-quarter and y/y basis.
Du Toit says house prices along the coast improved further in the second quarter of 2013, growing by a nominal 15.6 percent y/y, after being in a state of deflation from late 2011 up to mid-2012.
The relatively strong performance of the coastal market was largely driven by two regions:
• The north coast of KwaZulu-Natal nominal house price growth was 42.7 percent y/y in Q2 2013, which is indicative of the development along this section of the province’s coast in recent times and the consequent increasing demand for primary residential property.
• The Cape Peninsula and False Bay area in the Western Cape also recorded relatively strong nominal growth in house prices in Q2 2013, recording 16 percent y/y.
He points out these two coastal regions are to a large extent either part of or on the edge of greater metropolitan areas, which are driven by higher levels of economic activity and having larger populations than some other coastal regions, impacting property demand and supply conditions and price trends.
The Eastern Cape coastal region, despite having two metropolitan areas (Port Elizabeth and East London), recorded nominal price deflation of 3 percent y/y in Q2 2013.
He says this drop in house prices along the Eastern Cape coast is related to base effects and came against the background of relatively strong price growth recorded in especially East London a year ago.
Meanwhile, data from ooba shows positive y/y house price growth in July of 6.6 percent to an average purchase price of R902 900.
Healthy price growth was also recorded in the first-time buyers segment, with an average purchase price of R710 312, an increase y/y of 8.1 percent.
Eastern Cape property market
Jaco Rademeyer, principal of Jaco Rademeyer Estates, reports that interest from buyers of homes priced up to R1.5 million has increased.
He notes that while nationally, the trend is that homes sit on the market for four months before being sold, in the Eastern Cape, they find that if a property is priced right, they take on average two months or less to sell.
Nelson Mandela Bay remains the province’s economic powerhouse in terms of residential property demand and interest among buyers has jumped to more than 20 percent so far this year, he says.
Rademeyer says the seaside resort of St Francis Bay is one of the unlikely players in the region’s residential property market turnaround, after devastating fires gutted 75 properties on the town’s pristine canals in November last year.
According to Rademeyer, the town is experiencing a property market boom thanks to the funds from insurance companies to rebuild the gutted properties.
The town’s property values are rising again as builders stream in for the construction of newer, modern homes along the sought-after canal.
Some of the homes razed were valued at between R4 million and R6 million and this did not include the value of their contents.
In addition to national economic and consumer-related developments and trends, the residential property market at geographical level is in many respects also influenced and driven by area-specific factors and developments of an economic, infrastructure, demographic, social and physical nature, such as location, explains Du Toit.
“These factors may impact and lead to different property demand and supply conditions, level of market activity, buying patterns, transaction volumes and price levels and growth across the various regions.”
New and existing housing
According to the report, the average nominal price of a new house was up by 9.8 percent y/y to about R1 716 000 in Q2 2013, which translated into real price growth of 3.8 percent y/y.
The average price of an existing house increased by a nominal 11.9 percent y/y to R1 135 200 in Q2 2013, which came to a real price increase of 5.8 percent y/y in the quarter.
As a result, it was R580 700 or 33.8 percent cheaper to have bought an existing house than to have a new one built in the second quarter of 2013.
The price difference between new and existing housing has remained relatively stable at just below 34 percent since the second quarter last year, points out Du Toit. – Denise Mhlanga
Absa notes that nominal year-on-year (y/y) house price growth in the middle-segment of the market (homes measuring 80 to 400 square metres) and priced up to R3.8 million in 2013) increased further in the second quarter of the year, but lower price growth was evident in some middle-segment categories.
The report reveals that despite low mortgage interest rate, many households’ ability to take advantage of the favourable trends in housing affordability is still affected by factors such as employment, income, savings, living costs, debt levels, as well as credit-risk profiles (as reflected by the state of consumer credit records), the National Credit Act and banks’ lending criteria in the case of mortgage loan applications for buying homes.
Writing in the report, Jacques du Toit, Absa Home Loans property analyst, says a downward/upward trend in the abovementioned two housing affordability ratios implies that house prices and mortgage repayments are rising at a slower/faster pace than household disposable income.
The result is that housing is in effect becoming more/less affordable, he says.
According to ooba statistics, while many still battle to obtain home loan finance, they are seeing growth in first-time buyers with 53 percent of home loan applications being first-time buyers.
The value of new home loans approved through ooba in July was up 27 percent on July 2012 and from January to July 2013, ooba’s approvals were up 24 percent over the same period in 2012 and up 227 percent over the corresponding period in 2009.
Rhys Dyer, chief executive officer of ooba says there is renewed confidence in the market and home buyers have more access to credit for home loans, aided by record low-interest rates.
The average deposit recorded was up 16 percent y/y and 6.6 percent month-on-month to 14.6 percent of the purchase price while the average approved bond size was 4.1 percent higher y/y.
According ooba, the initial bank decline ratio dropped by 0.7 percent y/y – an average of 47.3 percent in July – while the ratio of applications declined by one lender, granted by another increased by 2.3 percent y/y to 29.9 percent.
The north coast of KwaZulu-Natal nominal house price growth was 42.7 percent y/y in Q2 2013, which is indicative of the development along this section of the province’s coast in recent times and the consequent increasing demand for primary residential property.
He says their approval rate was 66.8 percent in July and 1.5 percent higher y/y.
House price growth
Absa notes that nominal y/y house price growth in the middle-segment of the market (homes measuring 80 to 400 square metres and priced up to R3.8 million in 2013) increased further in the second quarter of the year, but lower price growth was evident in some middle-segment categories.
“Although remaining in positive territory, lower nominal y/y price growth occurred in the category for affordable housing in Q2 2013 from Q1 2013, whereas price growth in the luxury segment turned positive in Q2 2013 after price deflation in the first quarter.
The nominal price of a property refers to the price at which it was valued or transacted on the open market, i.e. the market price, selling or purchase price.
Du Toit explains that the real price of a property is the nominal price adjusted for the effect of inflation, and is calculated to determine if the value of a property has increased at a rate of above or below the inflation rate.
In addition to the nominal price, real price trends and growth are important from an investment point of view.
House price trends continued to be a reflection of property market conditions and related factors, which are affected by a combination of macroeconomic developments, the state of household finances and the level of consumer confidence.
Affordable housing
The second quarter of 2013 saw the average nominal price growth of affordable housing (homes measuring 40 to 79 square metres and priced up to R515 000 in 2013) continuing its gradual downward trend of the past three quarters to 3.6 percent y/y since peaking at around 7 percent in Q3 2012.
In real terms prices in the affordable segment dropped by 2 percent y/y and the average price of a home in the affordable segment of the market was R345 600 in Q2 2013.
Middle-segment housing
Y/y growth in the middle segment of the market (homes measuring 80 to 400 square metres and priced at R3.8 million or less in 2013) was 12 percent in Q2 2013 from 10.4 percent in the first quarter.
Housing affordability, as measured by the ratios of house prices and mortgage repayments to household disposable income levelled out towards the end of 2012 and early 2013, but remained largely favourable compared with a few years ago.
The following price changes occurred in the three middle-segment categories in the first and second quarters of 2013:
Small houses (80 to 140 square metres and up to R3.8 million): Q1 (nominal 14.5 percent y/y and real 8.3 percent y/y) and Q2 (nominal (8.1 percent y/y and real 2.3 percent y/y).
Medium-sized houses (141 to 220 square metres up to R3.8 million): Q1 (nominal 9.6 percent y/y and real 3.7 percent) and Q2 (nominal 7.5 percent y/y and real 1.7 percent y/y).
Large houses (221 to 400 square metres up to R3.8 million): Q1: (nominal 7.7 percent y/y and real 1.8 percent y/y) and Q2 (nominal 11.8 percent y/y and real 5.7 percent y/y).
Luxury housing
In the segment of luxury housing (homes priced at between R3.8 million and R13.8 million in 2013), nominal price inflation of 6.5% y/y was recorded in Q2 2013 after price deflation occurred in the preceding two quarters.
The average price of a luxury home came to R5 172 800 in the second quarter noting that as the sample size of this category of housing is relatively small, a number of transactions of a higher value compared with previous quarters could have contributed to the strong price growth in the second quarter.
Regional house prices
House price growth at a regional level performed relatively strongly in a number of geographical areas in Q2 2013 on both a quarter-on-quarter and y/y basis.
Du Toit says house prices along the coast improved further in the second quarter of 2013, growing by a nominal 15.6 percent y/y, after being in a state of deflation from late 2011 up to mid-2012.
The relatively strong performance of the coastal market was largely driven by two regions:
• The north coast of KwaZulu-Natal nominal house price growth was 42.7 percent y/y in Q2 2013, which is indicative of the development along this section of the province’s coast in recent times and the consequent increasing demand for primary residential property.
• The Cape Peninsula and False Bay area in the Western Cape also recorded relatively strong nominal growth in house prices in Q2 2013, recording 16 percent y/y.
The Cape Peninsula and False Bay area in the Western Cape also recorded relatively strong nominal growth in house prices in Q2 2013, recording 16 percent y/y.
The Eastern Cape coastal region, despite having two metropolitan areas (Port Elizabeth and East London), recorded nominal price deflation of 3 percent y/y in Q2 2013.
He says this drop in house prices along the Eastern Cape coast is related to base effects and came against the background of relatively strong price growth recorded in especially East London a year ago.
Meanwhile, data from ooba shows positive y/y house price growth in July of 6.6 percent to an average purchase price of R902 900.
Healthy price growth was also recorded in the first-time buyers segment, with an average purchase price of R710 312, an increase y/y of 8.1 percent.
Eastern Cape property market
Jaco Rademeyer, principal of Jaco Rademeyer Estates, reports that interest from buyers of homes priced up to R1.5 million has increased.
He notes that while nationally, the trend is that homes sit on the market for four months before being sold, in the Eastern Cape, they find that if a property is priced right, they take on average two months or less to sell.
Nelson Mandela Bay remains the province’s economic powerhouse in terms of residential property demand and interest among buyers has jumped to more than 20 percent so far this year, he says.
Rademeyer says the seaside resort of St Francis Bay is one of the unlikely players in the region’s residential property market turnaround, after devastating fires gutted 75 properties on the town’s pristine canals in November last year.
According to Rademeyer, the town is experiencing a property market boom thanks to the funds from insurance companies to rebuild the gutted properties.
The town’s property values are rising again as builders stream in for the construction of newer, modern homes along the sought-after canal.
Some of the homes razed were valued at between R4 million and R6 million and this did not include the value of their contents.
In addition to national economic and consumer-related developments and trends, the residential property market at geographical level is in many respects also influenced and driven by area-specific factors and developments of an economic, infrastructure, demographic, social and physical nature, such as location, explains Du Toit.
“These factors may impact and lead to different property demand and supply conditions, level of market activity, buying patterns, transaction volumes and price levels and growth across the various regions.”
New and existing housing
According to the report, the average nominal price of a new house was up by 9.8 percent y/y to about R1 716 000 in Q2 2013, which translated into real price growth of 3.8 percent y/y.
The average price of an existing house increased by a nominal 11.9 percent y/y to R1 135 200 in Q2 2013, which came to a real price increase of 5.8 percent y/y in the quarter.
As a result, it was R580 700 or 33.8 percent cheaper to have bought an existing house than to have a new one built in the second quarter of 2013.
The price difference between new and existing housing has remained relatively stable at just below 34 percent since the second quarter last year, points out Du Toit. – Denise Mhlanga
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