Demand for secondary homes is now on the decline

DEMAND for secondary homes and investment buy-to-let residential properties is continuing to weaken, suggesting a possible deterioration in the popularity of owning investment property.

John Loos, a household and property sector strategist at FNB Home Loans, said in these tougher economic times it was perhaps to be expected that secondary home buying would be placed “on the backburner” by many and levels of such home buying would be mediocre at best. But Loos said secondary home buying did not appear to have “fallen through the floor”.

FNB reported that secondary residential property buying declined mildly to 12.48 percent in the third quarter of this year after reaching a multi-year high of 14.47 percent of total home buying in the first quarter of this year.

However, FNB said secondary home buying remained far below the pre-2008 boom time levels, which at times exceeded 20 percent of home buying.

Buy-to-let homes, the main category of secondary home buying, declined to an estimated 8.23 percent of total home buying in the third quarter of this year from 9.77 percent in the second quarter.

Loos said this meant a continuation of single digit buyto-let buying since 2010 compared to the above 25 percent estimates in 2004 at the height of the housing boom.

Positive

He said the near-term expectation of agents of the direction of the buy-to-let market remained positive, with more agents expecting an increase than a decrease.

Loos said there was, however, a lower level of optimism among agents this year than last year and in 2015.

He added that estimated sales of investment properties, because these properties had generated a lower than expected investment income, had increased to 4.5 percent for the four quarters up to the third quarter of this year from 2.75 percent for the corresponding period up to the third quarter of last year.

“This increase suggests a possible deterioration in the popularity of owning investment property but (sales) remain at a moderate level compared to the 10.25 percent estimate for such sales at a stage in 2010,” he said.

Loos said there had also been a slight increase in the estimated percentage of investment properties sold for less than the previous purchase price following a marked rise for some time in the estimated percentage of investment properties sold at purchase price.

The percentage of homes being resold at either their purchase price or lower rose to 29.5 percent for the four quarters up to the third quarter of this year from the multi-year low of 15.25 percent of total investment property sales for the four quarters up to the second quarter of last year.

Loos added that “buying a home for use as a primary residence by a family member” was one category of secondary home buying that had declined quite noticeably to 0.89 percent in the third quarter of this year from the multi-year high of 2.32 percent of total home buying in the third quarter of 2015.

Loos said estimated holiday home buying had surprisingly not yet shown any noticeable decline and was estimated at 3.3 percent of total home buying in the third quarter.

He said this level had only been exceeded once since 2014, which was in the first quarter of this year, at 3.77 percent.

Near-term, Loos expected holiday home buying to decline.