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Tuesday Apr 28, 2009

Pmb residential sales slump 40% on strict lending

THE "torpedoing" of consumer expectations of home loan finance by the major banks has been blamed by a leading Pietermaritzburg agent for decline in the capital city's residential property sales of about 40 percent as well as a dip in selling prices of between 10 and 12 percent.

With strict lending practices likely to continue, Pelham Henwood, broker and owner of the four-office RE/MAX Midlands, expects this trend "to elevate the city's for-sale stock levels to a high of about 3 000 properties within the next three months".

Henwood forecasts that, based on current trends, only between 10 and 12 percent will be sold and said that the biggest decline in sales was in the top end of the property market.

He said there were 20 new listings pouring into the market every day, of which 10 were being channelled through his business.

Henwood puts available stock at about 2 000 properties.

"Ironically, the deceleration  in sales and its negative consequences comes against a backdrop of solid demand for homes, particularly in the middle and lower price ranges, with the finality to most outcomes halted in their tracks by banks' obstinacy on finance," he said.

Henwood said one major bank was considering 100 percent loans on homes under R500 000, but that this price bracket represented a low portion in availability of homes and demand.

A saving grace though, has been the still firming emergence of deposit driven and cash sales.

He said RE/MAX Midlands's cash sales business had more than doubled from 20 percent to 40 percent in the first quarter of 2009.

Further salvation has surfaced from a growing  willingness of sellers to support buyers' bond applications by underpinning them with loans to the buyers in the form of acknowledgments of debt.

Henwood reported several such deals with one recent sale involving an expensive commercial property enabled by the seller financing  25 percent of the transaction.

He believes sellers with high equities in their homes who are very keen to sell should consider the option, but advises that one should be aware of any risks.

First quarter sales turnover for the group, while down on last year's fourth quarter, had steadied as a result of an enormous effort to maintain a total market share of  40 percent.

Some light amid the gloom was the company's imminent marketing of a new 140-unit retirement village in the popular Victoria Country Club Estate where Henwood expects that the majority of sales - because of buyer financial profile in this market segment - to be largely cash driven.  

Sales in the secure golf estate - with its wide range of residential options, including apartments, cluster homes and medium to upmarket single residential properties - have remained firm.

Given the banks' continued rigidity on lending, Henwood - who has successfully grappled with the market's more serious downturns in the 1980s and 1990s, believes the market will only stabilise in the third or fourth quarter of the year, with downward pressure on prices continuing and only recovering next year.

Interest rate drops will assist the recovery in terms of strengthening buyer affordability, but, in the current market, he points out that such reductions are still too  little in terms of persuading the banks to advance home loans to aspirant home buyers still grappling with credit card and car repayments.

"It is going to take a lot more than a few rate cuts to bring these people to the equilibrium where their credit worthiness is reinstated," he said.-Mercury

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