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Monday Jul 13, 2020

Residential property market remains bleak

Residential property market activity plummeted by nearly half in the second quarter, compared with the first three months of the year, to its lowest level in 17 years, according to FNB's Estate Agents Survey.

FNB senior economist Siphamandla Mkhwanazi said the level of market activity fell to 3.4 points out of 10 points in the second three months during the lockdown, from 6.4 points in the first quarter.

The second quarter level was also below the 4.4 points recorded in 2008, during the global financial crisis.

"The slowdown was experienced across all price segments, although agents in the affordable market (properties priced below R750 000) reported relatively better activity,” said Mkhwanazi. Time on the market lengthened to 14 weeks and one day, from 13 weeks and four days in the first quarter.

The affordable market averaged 11 weeks, while the conventional market averaged 15 weeks and two days. However, this estimate was from a small sample of estate agents who were able to make a sale during this period.

Mkhwanazi said the outlook was also uninspiring: only 44 percent of the interviewed agents expected activity to improve in two to three months.

The majority who expected activity to improve primarily operated in the affordable segments.

From a home value perspective, 70 percent of sampled estate agents believed that prices would decline over the next 12 months.
However, only about 46 percent expected a decline in property values in the affordable market.

"This is consistent with our view that we will likely see a contraction in prices in middle to affluent segments, with a relative resilience in the affordable market. Overall, we expect a decline in property prices (around 5 percent) for 2020,” said Mkhwanazi.

The results showed the pandemic had not yet led to exceptional market discounts. The average discount (difference between final sale price and sellers' initial asking price) was 12 percent, relatively unchanged from 13 percent in the first quarter. This could be due to a limited number of transactions taking place due to lockdown.

Survey results showed that "downscaling because of life stage” was still the most prominent reason for selling a property, with such sales accounting for 23 percent of all transactions in the second quarter.

Estate agents reported an increase in volume of properties believed to be put on the market due to financial pressure. This was accompanied by a decline in the volume of sellers believed to be upgrading.

The rise in selling due to financial pressure largely came from the low- to middle-priced segments. Nevertheless, about 55 percent of these sellers return to the market and look for a cheaper property, as opposed to renting, said Mkhwanazi.
Emigration-related sales were unchanged at 17 percent in the second quarter, after averaging about 18 percent over the past year. The bulk (70 percent) of those selling to emigrate were 35 to 44 years old.

"We expect both volumes and house price to decline significantly this year. Some pent-up demand could be unleashed in the recovery phase, potentially from 2021, due to lower prices and borrowing costs,” he said.

However, this would likely not be enough to replace the lost demand, due to very weak labour market outcomes and the uncertain economic outlook.

Edward West
Cape Argus




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