Homeowners can’t compete any more
Lower disposable incomes, selling and transferring costs make property market difficult.
The trend of people staying longer in their houses is here to stay for longer, says FNB.
Disposable incomes have dropped, while the cost of selling and transferring property has increased. During the property boom years, homeowners who felt the itch to move could do so far more easily than those of today.
Lightstone Property data from last year shows that first-time property owners are hanging onto their properties for about 12 years, whereas during the property boom years, between 2003 and 2005, the average was seven years.
Repeat owners are holding onto their properties for between seven and nine years, versus three years in the boom years.
FNB property strategist John Loos says the higher cost of selling and transferring properties is one reason homeowners are hanging onto their properties for longer.
“Since 2000, property values have escalated by well over 300%. Disposable incomes haven’t gone up at the same rate, which makes purchasing a property less affordable for the majority of people,” he said.
“Then you have estate agents’ commissions of around 5%, transfer duties, conveyancing and other fees associated with the purchase of a property, which makes it more expensive to buy.”
The speculative boom in properties came to an abrupt end after the financial collapse of 2008, although South Africa’s property values were shielded to a large extent from the kind of price corrections evident elsewhere. “A decade ago, a significant number of people were buying and flipping properties within one or two years to make a profit, or to upgrade. Those days are gone,” said Loos. “Disposable incomes as a percentage of property prices were better 15 or 20 years ago. There’s been no big price correction in the property market as yet, and banks are stricter in lending money compared to the boom years.”
FNB’s latest Estate Agent Survey canvassed estate agents on the reasons clients were selling their homes. Four years ago, about 20% said they were selling to upgrade. Today it’s 10%, which Loos says is indicative of the deteriorating economic climate. Also on the increase is the number of people selling due to financial pressures, now accounting for 16% of sellers – although this is substantially lower than the 34% at the peak of the financial crisis in 2009. Other reasons for selling are emigration and downscaling due to “life stage”.
The Banking Association SA figures from 2016 show roughly 4.4% of bond accounts are in default, though fewer properties are being sold as a result of sale-in-execution orders granted by courts.
“The property boom years are behind us, and I think the trend of people staying longer in their houses is here to stay for the foreseeable future,” said Loos.
There’s been no big price correction in property market