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."

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