No luck for bar­gain hun­ters

Where are mar­ket val­ues re­ally at?

Finweek English Edition - - Property -

THE NUM­BER OF HOUSE sales may well have dropped by a mas­sive 30% to 40% this year but that hasn’t nec­es­sar­ily con­vinced sell­ers to lower their ask­ing prices. “There are no real bar­gains on the mar­ket yet,” says An­drew Gold­ing, CE of the Pam Gold­ing Prop­erty group. He says sell­ers are hang­ing on to prop­er­ties wait­ing for the mar­ket to turn while buy­ers don’t want to com­mit un­less they be­lieve they’re get­ting a cheap steal. “So sales are just not hap­pen­ing.”

Oth­ers agree. FNB prop­erty strate­gist John Loos says val­ue­buy­ing op­por­tu­ni­ties are only likely to emerge by first quar­ter 2009, when the re­al­ity of price de­fla­tion starts hit­ting home.

Lat­est fig­ures from FNB’s Res­i­den­tial Prop­erty Barom­e­ter sup­port the no­tion that sell­ers still have un­re­al­is­tic price ex­pec­ta­tions. The per­cent­age of prop­er­ties sold at less than the ask­ing price rose markedly over the past year – from 70% in sec­ond quar­ter 2007 to 85% a year later.

In­dus­try play­ers say one rea­son for the cur­rent stale­mate could be that con­sumers are re­ceiv­ing mixed mes­sages on house price trends. Five years ago Absa’s house price in­dex was the only of­fi­cial bench­mark avail­able to the in­dus­try. That’s no longer the case, with a num­ber of other in­dices com­ing to the mar­ket since.

While every­one wel­comes more in­for­ma­tion on price trends, the dis­crep­an­cies be­tween the var­i­ous in­dices raise in­ter­est­ing ques­tions on how sell­ers, buy­ers and es­tate agents should de­ter­mine the true mar­ket value of a house.

For ex­am­ple, Absa’s hous­ing in­dex shows mid-mar­ket house prices still grow­ing at more than 3% in July (yearon-year). But Stan­dard Bank’s prop­erty gauge has recorded a mov­ing av­er­age price de­cline of -8,2% for the past five months. Light­stone Risk Man­age­ment’s lat­est house price in­dex, which lags that of the oth­ers, shows house prices were still up 5,8% in April. Mean­while, mort­gage orig­i­na­tor ooba (for­merly Mort­gageSA), which launched its own house price in­dex last month, recorded an av­er­age an­nu­alised house price drop of -1,9% in July.

To con­fuse mat­ters fur­ther, es­tate agents also hold widely con­tra­dic­tory views on where house prices are head­ing. Some have made noises about prices fall­ing by up to 40% over the next 12 months, while oth­ers fore­cast a drop of no more than 2% to 3%.

The main rea­son for the dis­crep­ancy be­tween the vari- ous in­dices prob­a­bly lies in the dif­fer­ent method­olo­gies used to track house price move­ments. Some use av­er­age prices, some use me­dian prices and oth­ers use only re­peat sales prices. Some use the Deeds Of­fice as their prime source of in­for­ma­tion, while oth­ers use fig­ures from their own mort­gage books. Cur­rently, there doesn’t ap­pear to be any mar­ket con­sen­sus on which method­ol­ogy is the most re­li­able.

Be that as it may, one way to de­ter­mine fair value in the cur­rent mar­ket is to com­pare prices in terms of rand/sq m. Deon Less­ing, mar­ket­ing di­rec­tor at mort­gage orig­i­na­tor Bet­ter­bond, says the only way to weed out sell­ers with un­re­al­is­tic price ex­pec­ta­tions is for buy­ers to com­pare prices in square me­tre terms in the area in which they’re looking to buy.

Less­ing says while prop­er­ties in the same area should gen­er­ally have a sim­i­lar price range, a prop­erty’s age is a key fac­tor that will in­flu­ence square me­tre pric­ing. The older the build­ing and its fin­ishes and fix­tures, the lower the square me­tre price is likely to be.

Lat­est fig­ures from Absa sup­port Less­ing’s view, with rapidly ris­ing build­ing costs see­ing a re­cent widen­ing in the cost gap be­tween newly built and ex­ist­ing houses. In sec­ond quar­ter 2008 prop­erty buy­ers were pay­ing a pre­mium of 11,2%/sq m for the priv­i­lege of own­ing a new home. A year ago Absa’s fig­ures showed prices of new and sec­ond-hand homes were still roughly on a par.

No real bar­gains yet. An­drew Gold­ing

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