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Negotiating a buyers’ market

buyers' market

First-time buyers and investors are spoilt for choice with the best buyers’ market in nearly three decades. With a surplus of stock to choose from at an all-time low interest rate, where are the hotspots and can buyers afford to wait a little longer?

WORDS: DEBBIE LOOTS – PHOTOS: SUPPLIED AND SHUTTERSTOCK

Whether you are a first-time home buyer, an experienced property investor or a wealthy businessperson with money in the bank, it seems there is a good property deal out there for you. This is in part thanks to the lockdown’s negative effect on an already ailing economy, which filtered through to all sectors including the property market, as well as a substantially reduced interest rate.

Reasons to buy now

According to Renprop MD Chris Renecle, it has never been a better time to buy. “When weighing up the pros and cons of investing in residential property, you should consider the supply and demand ratio and inflation,” he says. “During Levels 4 and 5 of SA’s lockdown, all construction came to a halt. Thus, over the past two months, the supply of units has decreased. And while there may well be a decrease in demand, there will be a bigger decrease in supply because of construction backlog,” says Renecle. “This means prices will increase again.”  Berry Everitt, CEO of the Chas Everitt International property group, says buyers should not wait to take advantage of opportunities. And with the banks’ assisted-sale programmes being specifically designed to help troubled sellers to wait for buyers who will pay market-related prices, the market is not going to be flooded with distressed and repossessed properties at bargain prices. “Last month alone, almost 7% of our sellers withdrew their homes – and even more in the luxury sector, where homeowners can often afford to wait. Indeed, there is a growing shortage of stock in this sector, which is why we are seeing multiple offers,” Everitt says. 

Mid-range activity

The property sector may still be under pressure for the foreseeable future, but the low interest rate opens up opportunities for a new buyer to enter the market. And it is especially the low- to mid-market range up to R1.5m (in some areas even R3m) that shows most activity and stock available. BetterBond CEO Carl Coetzee says the interest rate, at its lowest in more than 50 years, and the extreme buyers’ market contribute to consumer confidence for prospective buyers who have a stable income and have been looking to purchase a home. “In fact, 70% of our applications in May were submitted by first-time buyers,” he says. “I predict that this market segment will become increasingly active as we emerge from this lockdown.”

Everitt says in the R1m to R2.5m and in the R2.5m to R5m price categories, home prices are currently back at about the same levels as in 2016 in many areas. “This makes a careful upgrade to either of these brackets a really good investment, especially if you are a repeat buyer with a decent deposit,” he says. “For example, if you have a R1m bond on which the monthly repayment was just under R9,500 at the start of this year, the lower interest rate means you could look at buying a home for R1.3m to R1.4m now, with a 10% deposit, for the same monthly repayment. And the decline in prices means you would be buying a home that actually has a much higher replacement value.”

Median price growth in high-end areas: January 2016 to May 2020 

CAPE TOWN   

Mouille Point R3.5m – R4.95m +41.4%

Cape Town CBD R1.72m – R2.285m +32.7%

Somerset West (FH) R2.35m – R2.425m +3.2%

Somerset West (ST) R0.98m – R1.3m +32.7%

Durbanville (FH) R2.375 – R2.65m +11.6%

Durbanville (ST) R0.75m – R1.44m +92%

George (FH) R1.153m – R1.7m +47.4% 

KZN

Ballito (FH) R2.3m – R3.4m +47.8%

Umhlanga (FH) R3.325m – R3.82m +14.9%

JOHANNESBURG

Fourways Gardens (FH) R3.8m – R4.1m +7.9%

Linden (FH) R2.55m – R2.965m +16.3% 

PRETORIA EAST

Menlo Park (ST) R1.49m – R1.962m +31.7%

Lombardy Estate (FH) R1.97m – R2.2m +11.6% 

ESTATES 

Steyn City R3.05m – R5.1m +67.2%

Val de Vie R5.55m – R7.92m +42.6%

Zimbali (FH) R7.525m – R10.65m +41.5%

Zimbali (ST) R3.75m – R6.25m +66.7%

Source: Lightstone Property FH = freehold; ST = sectional title

Where to buy

The general sentiment among real estate professionals is that people are less bound by location than before, as they continue to work remotely. According to RE/MAX of Southern Africa regional director Adrian Goslett, more people are interested in homes with scenic views and spacious offices in popular spots such as the KwaZulu-Natal’s North Coast rather than homes close to the city centres. Amdec Property Developments MD Guy Gordon says secure lifestyle estates like Sitari and Val de Vie, and mixed-use precincts such as Melrose Arch in Johannesburg and Cape Town’s The Yacht Club, continue to be in demand, possibly because they are privately managed and offer good rental returns. Pam Golding chief executive Andrew Golding singles out the Atlantic Seaboard and Cape Town’s CBD as standout areas. He also sees smaller towns gaining popularity – George, for instance, experienced a price growth of nearly 50% over the past four years. Pretoria East is benefiting from the same trend as Somerset West: new developments springing up near a growth node. As can be seen in the table below, which compares January 2016 with May 2020, these are areas that have experienced sound house price growth in recent years, yielding good capital appreciation for investors. Tyson Properties MD Chris Tyson says hotspots are changing all the time and investors are conservative.

“Hotspots are areas that simply offer more than other areas. Schooling and security in family-oriented suburbs are still driving sales across the country.” In Ballito, KwaZulu-Natal, property continues to sell consistently, even during the lockdown. As part of a recent Let’s Talk Property webinar, a panel hosted by Derek Watts discussed SA’s property hotspots. In a live poll taken during the webinar, this province’s North Coast took the top spot with 39% compared with other national areas, the next closest area being the Atlantic Seaboard at 27%. Seeff Sandton MD Charles Vining says activity has picked up at this office and it has had several offers in the R10m to R12m price range over the past two weeks. It signed an R18m sale in Sandhurst during the lockdown. “Anything priced at under R1.5m is selling very quickly, almost irrespective of the location,” says RealNet MD Gerhard Kotze. “There is currently more than enough stock to meet demand, but sales made are generally at 15% to 20% below asking price. Many sellers are not prepared to accept such a drop and will often just withdraw their homes from the market for a while.”

shutterstock“Anything priced at under R1.5m is selling very quickly, almost irrespective of the location” Gerhard Kotze, MD, RealNet

Luxury bargains

Seeff Properties CEO Samuel Seeff says now is a great time for bargain hunting in the high-end price band, as there is more stock and sellers are open to negotiation. “Since 2018, prices have declined by 20% at the top end of the market and we expect a further 15% to 20% drop this year because of the steep recession,” he says. “Foreigners can benefit from a further decline of about 20% due to the depreciation of the rand.” According to the Pam Golding Residential Property Index, house price inflation from January 2016 to May 2020 – four years and five months – has averaged 3.9%, with a significant range in price performance between various housing markets across the country. In the upper price band (>R3m) house price inflation has averaged 3.3%, with house price inflation turning negative in mid-2019. Prices have fallen on average by 4.9% in the upper price band during the first five months of 2020.

 

Median price growth over 10 years: 2010 to 2020

Clifton  R14.75m – R36m +144%

Llandudno  R7.45m – R21.8m +193%

Camps Bay  R6.5m – R16.2m +149%

Constantia Upper R6.5m – R12m +85%

Spanish Farm R3.825m – R6.5m +70%

Westcliff R4.5m – R10m +122%

Northcliff R1.9m – R2.9m +53%

Mooikloof R3.6m – R6.4m +78%

Waterkloof Ridge R2.1m – R3.36m  +60%

Zimbali R5.5m – R13.2m +140%

Umhlanga/La Lucia R3.35m – R6.6m +97%

Ballito R1.55m – R3.4m +122%

Sources: Lightstone Property and Propstats, courtesy of Seeff Properties

“While this rate of house price appreciation does not keep up with inflation and amounts to a loss in real terms, property is not meant to be viewed as a short-term investment” Adrian Goslett, regional director, RE/MAX of Southern Africa

Future outlook

What will the property scenario look like down the line? Goslett reminds buyers that property investment is a long-term commitment. “According to the RE/MAX National Housing Reports based on Lightstone Property’s data, in the first quarter of 2017, the average price for a freehold property was R1,161,481 and the average price of a sectional title unit was R944,008,” he says. “Three years later, the first quarter of 2020 reflected an average price of R1,183,943 for a freehold property and an average price of R963,971 for a sectional title unit. “While this rate of house price appreciation does not keep up with inflation and amounts to a loss in real terms, property is not meant to be viewed as a short-term investment. If prices were compared over a 10-year period, for example, we would see much higher rates of house price growth and greater returns on investment. To illustrate, a R1.6m property purchased as a primary residence in Claremont in 2010 is now worth R3.5m.”

 

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