No luck for bargain hunters
Where are market values really at?
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