Property sales cycle is adjusting to key changes
February 18, 2008
By Ethel Hazelhurst
If you are trying to sell a house for about R1.82 million, here's a tip. Take your house off the market for a while. This advice comes not because there's a conjunction of unfavourable stars working against you; it's just that the market pendulum has swung against you. If you're patient, it will return because pendulums always swing back.
John Loos, a property strategist at First National Bank, analyses the residential property market each quarter. His latest report shows that upper-income areas - "defined by estate agents as areas with an average house price of around R1.8 million" - are correcting after an overshoot.
"In 2003/04, when interest rates were falling, a lot more people could afford to buy, and everyone got into the market," he explains. "Prices rose too fast."
That's why this market segment is now the weakest. Loos's residential property barometer shows activity in the upper-income segment was 4.63 in quarter four, "significantly lower" than the 5.5 of the high-net-worth segment - defined by agents as having average house prices of about R3 million.
The reason the more expensive homes are performing better is that people who can afford them depend less on credit to finance the purchase and so are relatively unaffected by rising interest rates.
Potential buyers who are somewhat lower on the income scale have less spare cash and depend much more on credit. They have presumably overextended themselves and are reluctant or unable to draw on more credit. So sellers in this segment are the hardest hit by the series of interest rate increases since June 2006.
Higher interest rates aren't the only problem. Loos says the increasing development in this market segment is also responsible for a slowing in the rate at which people are able to sell their homes.
Those who bought into the "middle-income" area, where homes average about R1 million, were presumably more cautious when budgeting for a house and are therefore less vulnerable to the rate rises.
Activity levels in this segment registered 5.18, while the lower-income suburban areas, where prices average R493 000, registered 5.23 percent.
Loos says the differences in market segments are evening out and he expects the gaps to shrink over time.
The market generally is sticky.
Loos has a graph that shows the average time a property stays on the market has been rising since 2004. And last month it rose to 11.2 weeks, from a previous average of 10.5 weeks.
Property cycles come and go but there are also structural shifts that affect the property market.
Cities are no longer hubs with spikes in all directions. They are exploding from their centres, moving further and further way from what was once regarded as the central business district (CBD).
Commercial and shopping nodes are erupting all over urban areas, creating a network of overlapping CBDs.
But the road networks are adjusting only slowly to the different patterns of movement. Narrow suburban roads are regularly choked with traffic, turning simple journeys into nightmares.
Gridlocked traffic, along with high fuel prices, must be changing perceptions about the best place to buy a home. Better access to schools, work places, shopping and entertainment must be moving up the list of home buyers' priorities.
A young executive recently told me she had sold in Sandton and moved to Krugersdorp to improve the quality of her life.
How long will it be before "position, position, position" takes on a new meaning?
|
|
