Lower property prices favour buyers
The SA property market has recently experienced the biggest decline in prices since 1986, and this - with a 450 basis point decline in interest rates since December - has made home ownership more affordable.
Colleen Gray, MD of Century 21 South Africa, says the average home price to average income ratio as calculated by First National Bank has moved strongly in favour of buyers as a result of a decline in home prices of more than 10% in the year to end-June.
"The message is that if you have the wherewithal, now is without doubt the time to buy property in anticipation of the inevitable market turnaround. This scenario is similar to that of the UK right now, where the Halifax Group, one of the major property lenders, says houses are three times more affordable since prices there began falling 18 months ago."
On the local scene, she says, it is very difficult for potential buyers to obtain home loans, and virtually impossible without a substantial deposit.
"And there are other negative factors discouraging people from buying, such as increased unemployment, the danger of further retrenchments and low consumer confidence.
"However, we believe that for those with the foresight and the means to capitalise on the situation, there is now a window of opportunity for profiting from property."
Those who remain sceptical about the possibilities of a property revival are also inclined to query the repeated reports in the press claiming that investors and speculators are returning to the residential property market - but this is happening, says Mike Greeff, CEO of Greeff Properties, and the reasons for this, he believes, are not hard to find.
"Right now," says Greeff, "the number of distressed home owners is at an all-time high. This is creating bargains for those with cash or with the ability to get a bond."
Taking as an example a typical "not very grand but quite satisfactory" three-bedroom home sold recently in Wynberg for around R1 million, Greeff says this was R350 000 below the original listing price. But after waiting many months for a buyer, the seller had felt obliged to accept the offer.
After putting down a R100 000 deposit, the buyer raised a bond of R936 000, his bond costs being in the region of R8 300 (paid upfront) and his transfer duty R36 300.
He then found a tenant prepared to pay R6 400 a month, which meant his shortfall on the bond repayments was R4 200 a month.
"By the end of 2010 prices should be back to March/April 2008 levels - and the buyer will be in an even better position," says Greeff.
"On a conservative estimate, this Wynberg home will then be worth the original listing price of R1.35m. If the investor sells at the end of 2010 he will net R350 000 - a very healthy R280 000 (excluding capital gains tax) return on an outlay of only R100 000 and 18 months rent subsidies totalling R75 600."
Asked what proportion of buyers are in fact planning to be in for a short 18- to 36-month run, he says that about 20 percent of all Greeff's buyers returning to property are, in fact, short-term investors, who intend selling within five years. Many others, he says, are building portfolios to pass on to their heirs.
Sunday Argus
Posted at 09:27AM Jul 13, 2009 by Editor in Market |