Residential property activity improves

16 Jan 2014

According to the FNB Estate Agent Home Buying Survey Q4 2013, the residential property market in South Africa has strengthened.

The report reveals that 34 percent of agents expect activity to increase in the next three months, down from 61 percent in Q3, while 48 percent expect it to stay the same and only 18 percent expect a decrease in activity.

This rising trend in the activity rating through 2012 and 2013 has been more gradual than the short sharp growth surge of 2009/10 (the 2009/10 surge being driven by huge interest rate cutting at the time), which tapered off relatively quickly in 2011.

The report reveals that 34 percent of agents expect activity to increase in the next three months, down from 61 percent in Q3, while 48 percent expect it to stay the same and only 18 percent expect a decrease in activity.

Along with the gradually rising activity trend, agents also saw a broad improvement in the balance between demand and supply in 2013, explain report writers John Loos, FNB Home Loans household and property sector strategist and Theo Swanepoel, FNB Asset Finance property analyst.

Agents point to stock constraints and these are reflective of building activity, which has remained relatively weak in recent years.

According to the report, 16 percent of agents surveyed cited stock constraints as a factor influencing their near-term expectations – higher than the 15 percent in the previous quarter, noting that 2013 was more constrained than 2012.  

Loos and Swanepoel say according to the agents, it takes 15 weeks and one day to sell a house compared to 14 weeks and five days in Q3 3013.

The market still has a lot of unrealistic sellers with 85 percent having to drop their asking price in order to sell (88 percent in the third quarter) and this figure was 30 percent in early-2004.

When agents were asked to estimate the average percentage asking price drop on those properties where a price drop is required to make the sale, this remained at -9 percent (-13 percent in 2011).  

On property affordability, the percentage of agents who perceived income levels to be far behind house prices declined from 21 percent in the preceding quarter to 12 percent in Q4 2013.

Those perceiving income levels to be a little behind house price levels rose significantly from 33 percent in Q3 to 48 percent, implying that the percentage of agents believing that income levels have kept up with prices declined from 46 to 40 percent over the two quarters, say Loos and Swanepoel.

It is too early to ascertain whether the decline in those perceiving income levels to have kept up with prices in the Q4 is the start of a deteriorating affordability trend.

“Given no further interest rate cuts in 2013, weak economic and wage bill growth, and our FNB House Price Index showing accelerating growth late last year, it is entirely possible that we may be entering a period of deteriorating affordability, after an improving trend dating back to around 2009,”  according to the writers.

On average property prices over the next 12 months, 21 percent of agents reckon prices will increase by 5 percent, 15 percent of agents expect between 6 and 8 percent, 12 percent a 10 percent rise and only 6 percent anticipate over 10 percent growth. – Denise Mhlanga (Property journalist at property24.com)