Light at the End of the Tunnel for Property Market in SA

Property Slump Felt Globally

An article in the Weekend Post has highlighted the fact that while South Africans are currently under increased financial pressure due to rising inflation and interest rates, as well as the steady drop in house prices, the situation is not isolated and is being experienced elsewhere in the world.

After the property boom in South Africa four years ago, the bottom has literally fallen out of the market, with sellers in the Cape having to settle for up to 30% less than asking price. Many homeowners are finding themselves ‘out of pocket’ in a buyers’ market and some are even being forced to put their homes up for auction in a bid to get the highest possible sale price.

The latest trend in the residential property market has seen buyers literally ‘shopping around’ for the best deals. FNB property economist, John Loos indicated that a recent survey of estate agents by the bank showed that up to 83% of sellers nationally were having to accept offers lower than asking price.

“This is not surprising. During the property boom in 2004, only 30% of sellers had to accept lower offers. It has increased dramatically since then and I think that is indicative of lean times,” said Loos.

According to Ian Olivier of Ian Olivier Properties, Port Elizabeth’s residential property market has seen up to 90% of homes selling for less than asking price – with some sellers taking 30% cuts or more.

Olivier said, “On average, we’re finding that sellers are accepting offers of 10% less than their original listing price, with some dropping substantially more. Among recent examples is a townhouse in Lorraine, which the seller initially priced at R575 000 against the advice of his agent. It is now being marketed at R390 000, five months down the line”. He adds that a house in an upmarket suburb listed at R3.7m recently sold for a million rand less.

Ken Ralph, national vice president and chairman of the southeastern region of the Institute of Estate Agents of South Africa has advised homeowners who are struggling to meet financial demands with the ever-increasing cost of living, petrol and high interest rates, to seek out their bank’s assistance before choosing to sell their homes.

According to Ralph, “Banks don’t want to repossess properties because the market is so saturated”. He added that South Africans are not the only ones experiencing this kind of pressure. “If you look at Australia and New Zealand, the property market is the same. Prices have fallen (in those countries) by up to 20%”.

Hanilie Bassingthwaighte, principal of Pam Golding Properties in East London said that the more correctly priced the properties, the higher the likelihood of achieving a successful sale. “On the rising market, sellers took it for granted they would get what they were asking. However, given the decline in the market, they cannot ask the same,” she said.

Buyers are no longer restricted by choice as they were during the boom years, when the stock of property on the market was in short supply. Buyers are now controlling the market activity by submitting offers lower than asking price and setting the bottom line when it comes to negotiations over price.

“This means that sellers who are not prepared to entertain pricing advice from their listing agents are effectively knocking their properties right out of the market,” said Olivier, adding that sellers should be aware that buyers are invariably walking away from deals rather than committing themselves financially.

Realistically priced homes are still likely to sell within the globally accepted benchmark period of 3 months. “It is not unheard of for homes to sell within a month either – if they are properly priced. What is indisputable is that uptake of over-priced properties has dropped to almost zero,” said Olivier.

Despite all the perceived ‘doom and gloom’, Ralph argued that, “We went through a similar period in 1998, but what goes up must go down. It’s not all negative, there is still light at the end of the tunnel”.

There are still those who have an immense amount of faith in the South African economy and Ralph is privy to many successful clients who are currently in the process of buying more properties, as well as overseas buyers taking advantage of the local opportunities available.

The information in this article is courtesy of Melody Brandon (“Desperate times as home prices plummet”, Weekend Post, 12 July 2008).

If you would like to buy or sell property in South Africa, please visit www.sahometraders.co.za.