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Thursday Aug 08, 2013

Lower income property market strongest - FNB survey

Selling to upgrade is contributing to the strong sales activity in the lower-income area segment of the housing market and is a key driver of sales activity levels in the middle-income segment, according to FNB.

The financial strength of homeowners in the lower-income segment has also improved at a more rapid rate than the other three segments of the market, since the height of the financial stress in 2009.

John Loos, a household and property sector strategist at FNB, said yesterday the bank's estate agent surveys for the four quarters up to and including the second quarter of this year revealed that the lower income segment was experiencing the most demand with an average rating of 6.52 on a 10-point scale. This compared with 6.46 for the middle-income segment, 6.08 for the upper-income segment and 5.82 for the high-net worth segment.

Houses in the high-net worth segment had an average price in the second quarter of R3.636 million, the upper-income segment R2.41m, the middle-income segment R1.15m and the lower-income segment R724 700.

Loos said the steady rise in the percentage of sellers believed to be selling to upgrade to a better home had reached an estimated 22.25 percent of total sales in the lower-income segment in the second quarter. This was probably driven by solid first-time buying in the current low interest rate environment and relatively easy access to credit.

But Loos stressed that strong levels of selling to upgrade in the lower-income areas might be a key driver of activity levels in the middleincome area segment.

He said the percentage of sellers selling to upgrade the middle-income segment at 16.25 percent was significantly lower than the lower-income segment and had been trending sideways to lower over the past year. Similar stagnant trends had also been witnessed in the upper-income and high-net worth areas.

The estimated percentage of sellers in the low-income areas believed to be selling to downscale because of financial pressure declined to 17.5 percent for the four quarters up to and including the second quarter, from a peak of 38 percent in the second quarter of 2009. It fell below that of middle-income areas (18.75 percent) and higher-income areas (18.25 percent), with only the high-net worth areas having a lower percentage at 16.5 percent.

In regard to price realism, the average estimated time homes in the lower-income segment were on the market before being sold was 12.2 weeks compared to 13.9 weeks for the middle-income segment, 18.6 weeks for the upper-income segment and 19.8 weeks for the high-new-worth segment.

Loos said higher-end homes would normally be expected to be on the market for longer, but the gap between the segments had widened in the first half of this year.

The percentage of properties sold for less than the asking price in the past four quarters dropped to 79.5 percent of total sellers in the lower-income segment, while it increased mildly in the other three segments.

Loos said the lower-income area segment appeared to possess the most solid market fundamentals of the four segments, followed closely by middle-income areas. But he warned that the recent solid performance by the lower-income segment did not necessarily mean its superiority was sustainable once the interest rate cycle turned.

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