It may be 7 years in the dim and distant property past but the 2005 Seller frenzy that saw many property prices being bidded up resulted in a massive buyer hangover that looks set to continue for the next 2 to 3 years. This prediction was made last week by Thomas Lawrence of Lew Geffen Sotheby’s in Port Elizabeth.
In 2012 home owners have seen the real value of their homes slip drastically from the prices paid for them in 2005 BUT the real growth rate (with inflation stripped out) over the past 12 years has been a healthy 70.3%. Those purchases made before 2005 have shown decent growth.
The Knowledge Factory’s property data indicates that for properties valued between R300 000 and R5 000 000 the compound annual growth rate based on median prices for the past 4 years has just managed to crawl above the zero mark to 0.06%. FNB’s research, based on a different set of variables, puts real house price growth over the same period deep into negative territory at -12.6%.
As Thomas says; “The profit is made before you buy”
In 2005 43.5% of properties sold for less than the asking price. Today that figure has climbed to 81% – a sad indictment of sellers’ expectations and estate-agent complicity. As a result properties are taking much longer to sell. In 2005 it took, on average, only 7 weeks to sell a house. In 2010 it more than doubled to 15 weeks and 4 days. The average time to sell a home in 2012 has climbed to 17 weeks.
The sentiment amongst Estate Agents is that agents are continuing to leave the industry by the churn is slowing down which could be an early indicator of better sentiment for the property market. Bond lending rates are slightly up by 0.08% and the bond acceptance rate has climbed to 55% from below 50% last year.
The above factors combined with low interest rates, lower prices and a 2 to 3 year sideways movement could indicate a decent starting point for many to re-enter the property market.
Lawrence points out the normal ‘cast in stone’ rules apply:
- ‘Location, location, location’ means purchasing the “worst” home in the best area you can afford. This will prevent you from overcapitalizing when you start adding-on or renovating. In addition, foresight may prevent you from incurring relocation costs while navigating life-cycle changes.
- Ensure you can afford the current interest rate PLUS an additional 2%. You will be bitterly disappointed when, due to inadequate planning, you are coerced to liquidate your investment before you have made a healthy return.
- Manage potential risks/benefits. Consider how crime may affect property values such as its proximity to informal settlements or taxi ranks. Conversely, having your home next to a transport node or new Mall may increase its value, but consider the increased traffic or noise factors.