Friday, 29 January 2010

First-time buyer segment resilient

There is unflagging improvement in the residential market's first-time buyer segment, which rose from 14% of total buying in Q2 2009 to 19% in Q4 2009.

On top of that, it is expected to rise even further during the course of the year to comprise an even bigger share of total buying.

This was one of several positives in FNB's Residential Property Barometer for Q4 2009.
"The group probably benefits more than many others from the banks' recent relaxation of deposit requirements on home loans, as these buyers are probably a low savings group even by South Africa's weak savings standards," says John Loos, property economist at FNB.

"This source of demand is typically more cyclical than the overall market, and it is expected to rise to a higher percentage of the total in the coming quarters. I expect the growth in this segment to continue for another quarter or two.

"But it won't reach 30% of total buying like in the boom years," Loos said.
The other main positives emanating from the report are the reduction in selling time and greater price realism and affordability.

Where a property took on average 16 weeks and four days to sell in 3Q 2009, this figure dipped to 13 weeks and two days in Q4 2009. "This represents a big decline from the peak of 21 weeks and one day just two quarters ago."

In the final quarter of 2009, survey respondents reported that the overwhelming majority of sellers, i.e. 89%, still had to ultimately drop their asking price in order to make a sale. "This percentage was, perhaps surprisingly, up from the pervious quarter's 83%."

"However, the faster pace of the average sale suggests greater realism, not necessarily in the form of sellers deliberately asking for lower prices, but rather in terms of the demand side catching up, and buyers putting in stronger offers."

On the point of affordability, the report showed that the reasons for selling given by estate agents have begun to point towards a mildly better financial position of households.

"Downscaling due to financial pressure during the fourth quarter declined from 28% in Q3 to 24% in Q4. The percentage of downscaling sellers at the higher end of the market is noticeably less than the lower end."

"Simultaneously, selling in order to upgrade rose further from 12% of total sales to 15% over the same two quarters."

Loos says 52% of agents surveyed anticipate better activity in Q1 2010 when compared with Q4 2009.

But the report also had some negative findings, such as the state of the buy-to-let market, indications that the growth trend is nearing its end and a slight increase in emigration as a selling factor.

Loos said the start of a declining growth trend started appearing in Q4. "We'll start seeing a plateau in the demand for houses as the effect of lower interest rate cuts starts wearing thinner.

However, 2009's fourth quarter still saw positive growth to the tune of 23,7%, which is strong but lower than the 36,8% of Q3.

"The buy-to-let market has showed no significant improvement when its activity is expressed as a percentage of total activity. Its share of total buying is 13%, which is unchanged from 2009's third quarter."

Emigration selling expressed as a percentage of total sales rose slightly from 6% in the previous quarter to 7% in Q4. "This suggests that after the strong downward trend in this percentage, from the 20% high at a stage of 2008, the rate of emigration selling may be levelling out."

No stimulus for property market

The property market will have to get by without the stimulus of a series of rate cuts, as it is unlikely to enjoy much interest rate relief during 2010.

The property market will have to get by without the stimulus of a series of rate cuts, as it is unlikely to enjoy much interest rate relief during the course of 2010.

This is the word from Brian Falconer, CEO of Colliers Residential in response to the SA Reserve Bank Monetary Policy Committee's decision to leave the repo rate unchanged. It has now remained unchanged since August last year, at 7%.

This leaves the prime rate at 10,5%, which is still too high to stimulate the property market, says Falconer.

"We can understand the Reserve Bank's reluctance to afford debt-strapped consumers a further 50 basis point cut, but it is disappointing that our interest rates remain so high," says Falconer.
"While there are a few signs of recovery in the property market, notably in upward house prices, other indicators remain negative.

"For instance, the total value of building plans passed by larger municipalities decreased by 23,1%, or R17,4 billion, in the first 11 months of 2009, as reported by Statistics South Africa.
"This is a true leading indicator, and it tells us that consumer and investor confidence in the property market remains low.

"Of particular concern to us is the fact that the largest decrease in approved business plans was for residential buildings, which fell by 38%, or R13.9 billion. This is a clear indication that the market will remain sluggish during 2010 without the external stimulus a rate cut would have provided."

While Falconer has understanding for the Reserve Bank's decision, he points out that there was significant favourable data to have led to a different decision:
At 5.8%, inflation is under control. Specifically, food inflation did not spiral out of control over the Christmas season.

Festive season retail figures were down at their lowest level for a decade, according to preliminary sales data.

While some commentators have viewed this as a consequence of job losses caused by the recession, another view is that people are concerned about incurring additional debt - credit extension was down 1,59% year on year in November 2009.

This would mean that the Reserve Bank's policies regarding credit have succeeded in their intent.

Despite the record cold snap in the northern hemisphere, oil prices have remained lower than expected, keeping a lid on inflation.

Against this, though, are the looming Eskom price increases and anticipated inflationary inputs from the Soccer World Cup.

"On balance, the Reserve Bank may have made a decision that is in the country's broader interests, but from a property perspective, we would hope for a little more latitude next time around," says Falconer.

"The property market needs positive stimulation, and we hope it will come around later this year. But for now, we have to get by with what we have".

Source: I-Net Bridge