Key fac­tors that in­flu­ence buy­ing and sell­ing de­ci­sions

Adrian Goslett, CEO of RE/MAX of South­ern Africa, talks to Home­front about what is driv­ing buy­ers and sell­ers and what fac­tors will in­flu­ence the lo­cal real es­tate mar­ket in the months ahead

Business Day - Home Front - - HOMEFRONT -

IT HAS been said many times be­fore that buy­ing a house is likely to be one of the big­gest fi­nan­cial in­vest­ments any­one can make in their life­time. It makes sense then that the prop­erty peo­ple own makes up a large por­tion of their wealth.

While not all South Africans own prop­erty, they want to. South Africans have been seen as a nation that val­ues prop­erty own­er­ship above other in­vest­ments and see it as an im­por­tant part of their life­style.

In light of this, un­der­stand­ing con­sumer be­hav­iour and other fac­tors that drive prop­erty in­vest­ment is cen­tral to any prop­erty trans­ac­tion for both the buyer and seller.

In cur­rent mar­ket con­di­tions, buy­ers need to un­der­stand fully the prop­erty mar­ket and the fac­tors that in­flu­ence it when mak­ing their pur­chase de­ci­sion in or­der to se­cure the best deal. Some of the key fac­tors that in­flu­ence the mar­ket are:

De­mo­graph­ics The com­po­si­tion of a pop­u­la­tion in a cer­tain area based on age, gen­der and in­come are sta­tis­tics that are of­ten over­looked, but de­mo­graph­ics are con­sid­ered to be a sig­nif­i­cant fac­tor in de­ter­min­ing how real es­tate in a cer­tain area is priced and what kinds of prop­er­ties are in de­mand.

In­ter­est rate SA cur­rently has the low­est in­ter­est rate it’s had in 38 years. Sitting at 9%, the cur­rent rate has made in­vest­ing in prop­erty an at­trac­tive op­tion for many who have been able to af­ford it over the past year or so. But in­ter­est rates are ex­pected to in­crease in the next year or two and may pos­si­bly reach the 12% mark again in the months ahead. Changes like this would in­flu­ence the abil­ity of con­sumers to pur­chase prop­erty greatly as it af­fects the monthly re­pay­ment fig­ure and there­fore the af­ford­abil­ity ra­tios.

Gen­eral eco­nomic per­for­mance The over­all health of the econ­omy and gen­eral eco­nomic per­for­mance as mea­sured by eco­nomic in­di­ca­tors is an­other key fac­tor that can have an ef­fect on the value of real es­tate. Gen­er­ally, a slug­gish econ­omy can be linked to a slug­gish real es­tate mar­ket; how­ever, in­vestors should be aware what cy­cle the econ­omy is in and mind­ful of the real es­tate in­dus­try’s sen­si­tiv­ity to the cur­rent eco­nomic cy­cle.

Gov­ern­ment leg­is­la­tion Leg­is­la­tion is also an­other fac­tor that can have a sub­stan­tial im­pact on prop­erty de­mand and prices. Taxes such as cap­i­tal gains tax and trans­fer du­ties all in­flu­ence the af­ford­abil­ity of buy­ing and sell­ing prop­erty. Trans­fer du­ties have come down con­sid­er­ably over the past cou­ple of years, as have the cap­i­tal gains tax­a­tion lev­els.

In or­der to get the best price for their prop­erty in the short­est pos­si­ble time sell­ers need to up their game. This is one of the key in­sights from an ar­ti­cle pub­lished on www.real­trends.com. Steve Mur­ray, the edi­tor of Real Trends, a trends of a dog’s dis­carded ten­nis ball. Buy­ers want to feel that a home is clean and well main­tained. If it’s not, they’ll likely move on to the next.

Sell­ers who hang around dur­ing an open house

There's a rea­son sell­ers shouldn’t stick around when po­ten­tial buy­ers ar­rive. While a seller may be per­fectly friendly and agree­able they can alien­ate buy­ers or make them feel un­com­fort­able with­out even know­ing it. Buy­ers should be free to con­verse with the agent or each other or give opin­ion on el­e­ments of the home. It’s part of the buy­ing process.

Hold­ing out for ex­tra money at the last minute

Say a buyer made an of­fer that was less than what the seller wanted. The agent and the buyer have gone back and forth with a se­ries of counter of­fers. The seller is close to achiev­ing their dream price but in­sists on try­ing to squeeze more out of the buyer. In de­mand­ing more money the seller may have cre­ated bad will, as well as stressed those in­volved in the pur­chase. When it comes down to it, ex­tract­ing that ex­tra lit­tle bit may ac­tu­ally cost the seller more at the end of the trans­ac­tion. Be care­ful not to win the battle and lose the war.

Sell­ers who don’t clean up be­fore turn­ing over the keys

Sell­ers should imag­ine them­selves as the fu­ture buyer. Would they want to walk into their new home and find twelve cans of old paint in the garage? Or an old sofa with a bro­ken leg in the store­room? The tip to sell­ers is to try to make the home as spot­less as pos­si­ble for the new own­ers.

Lo­cally, cur­rent mar­ket con­di­tions show that there is still an im­bal­ance be­tween the high lev­els of res­i­den­tial prop­erty stock and de­mand for it. While this presents an ex­cel­lent op­por­tu­nity for buy­ers who can demon­strate af­ford­abil­ity to fi­nan­cial in­sti­tu­tions and who have credit records and there­fore ac­cess to fi­nance, the high lev­els of house­hold debt com­pared with dis­pos­able in­come will mean that prop­erty de­mand will re­main fairly flat for the re­main­der of the year.

In fact, with in­ter­est rate hikes pre­dicted in the near fu­ture we are an­tic­i­pat­ing that de­mand will re­main at much the same lev­els as the sec­ond half of 2010 for the fore­see­able fu­ture. But prop­erty is a long-term in­vest­ment and buy­ers who en­ter the mar­ket now at an all­time low will reap the cap­i­tal ben­e­fits through ap­pre­ci­a­tion over the next few years.

There are many fac­tors to con­sider when buy­ing or sell­ing prop­erty and un­der­stand­ing mar­ket dy­nam­ics is es­sen­tial for suc­cess­ful in­vest­ment ven­tures. There can be no doubt that un­der­stand­ing the key fac­tors that drive the real es­tate mar­ket is es­sen­tial to per­form­ing a com­pre­hen­sive eval­u­a­tion of a po­ten­tial in­vest­ment and thereby en­sur­ing you are in­vest­ing wisely.

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