Would you buy this Holiday Property?

The South African holiday property market is said to be suffering currently as property buyers are choosing to purchase primary residences instead.


Aerial view of Myoli and Cola Beaches in Sedgefield

According to estate agents surveyed in the FNB Property Barometer Holiday Towns versus Metros Q2 2011 report, demand for holiday property homes has declined.

The report suggests that holiday-driven property regions in South Africa are more cyclical than primary residential-driven major metro regions, reaching higher peaks in the booms and lower troughs in the tough economic times.

FNB Home Loans property strategist John Loos says after a recovery of around 1 percent in mid 2010, the estimated holiday property buying expressed as a percentage of total residential buying dropped from 3 percent in Q2 2011 to 2 percent in the third quarter.

Loos says the percentages remain below the 5 percent level recorded at the beginning of 2007.

He explains that the continued focus primarily on primary residential buying means that major metro housing markets appear to outperform those towns more strongly driven by holiday property demand.

The FNB Holiday Towns House Price Index remains in deflation territory of -4.9 percent year-on-year in Q3 2011 while the country’s six primary residential demand-driven metros showed house price growth of +3.8 percent.

Both indices are estimated using Deeds Data transactions by individuals, he adds.

Estate agents operating in some holiday towns in South Africa report an increase in buyers who seek a better quality of life away from bustling cities.

Jawitz Properties report that Ballito in KwaZulu-Natal has shed its holiday resort image and is fast becoming a popular residential town enticing many Gauteng buyers.

Keith Brown, Jawitz Properties principal franchisee says the property market in Ballito is looking up adding that although there have been fewer property sales than pre-2008, home prices have not come down as dramatically as in other areas in KwaZulu-Natal.

This luxury six bedroom, four bathroom log home (currently used as a guesthouse) is situated in the beautiful Cola Conservancy in Sedgefield and is priced at R2.3 million through Pam Golding Properties.

Brown says the market has been reasonably stable for the past year and is expected to remain steady in 2012.

“Supply and demand always plays a role in pricing as well as external factors such as the bank lending criteria and the economy.”

He says the greatest value is still in the suburbs where homeowners pay less per square metre and demand for older homes that need renovation has increased with stock shortages.

The average price for a three bedroom family home is R1.9 million while a renovated home of equal size starts from R3 million.

Properties in gated estates are priced from R3 million and two bedroom sectional title units on the beachfront cost anything from R1.5 million depending on location and age of building.

He says the lower end of the market up to R1.5 million is the most active segment fuelled mainly by first-time buyers who qualify for home loans. The middle income segment buyers in the price ranges of between R1.5 million to R3.5 million are faced with affordability issues making it difficult to access finance and sales are quite slow in the upper end of the market.

“Deals when they do occur, are usually generated by cash buyers or bridging finance,” he says.

The coastal town of Sedgefield in the Western Cape not only remains a village of choice for retirees but has recently been attracting new buyers including sports enthusiasts, reports Pam Golding Properties (PGP).

Walter Bakker, PGP Sedgefield marketing manager says this town where the pace is slow (thanks to its newfound Cittaslow status as a result of the annual Slow Festival every July) has seen increased global exposure attracting interest from buyers wanting to own homes in the area.

Bakker says homes priced from the early millions are being snapped up by investors and buyers who waited to capitalise on opportunities to finally purchase their longed-for seaside home.

He says two bedroom homes with a full one bedroom guest suite with own kitchen are priced at R895 000 and R999 000 buys one a family home.

Bakker says Sedgefield is ideally suited for those who work in nearby Knysna or George and prefer to live in a quiet village yet be within easy driving distance of these towns.

Building activity in Sedgefield has resumed with new homes being developed in suburbs such as Cola Beach in the Cola Conservancy.

This character-filled one-bedroom fisherman’s cottage is on the market in Pringle Bay, exclusively through Pam Golding Properties. The cottage is located on 600 square metres of pristine fynbos garden within walking distance of the beach. It is priced at R850 000.

Bakker adds that 60 to 70 percent of permanent residents in Sedgefield are homeowners making it a desirable place to live.The Cape coastline from Gordon’s Bay towards the southern Cape is renowned as one of the most beautiful scenic drives in the world and whale-watching opportunities.

PGP managing director for the Boland and Overberg region, Annien Borg says the Whale Coast, spanning the towns from Pringle Bay in the west to Gansbaai in the east offers a wide range of property options at attractive prices.Borg says there is something to suit every need and price range, from vacant land to apartments, compact holiday homes and luxury seaside mansions.

“The individual towns vary in size, amenities and property offering but what they all have in common is a magnificent seaside setting and a slower pace of life, ideal for holidaymakers, retirees or those who simply want to opt out of the hustle and bustle of big city living.”

PGP says Betty’s Bay is renowned for its magnificent botanical gardens and extensive network of beaches and inland waterways.

A vacant 600 square metre plot in Pringle Bay costs under R400 000, a small holiday cottage under R850 000 and larger family homes for between R985 000 and R1.4 million.

In Betty’s Bay, modern family homes with four bedrooms or more located slightly back from the seafront are available for between R950 000 and R1.8 million.

Prices increase with proximity to the sea and on the coastline itself there are a number of modern luxury homes selling for between R3.2 million and R7.5 million.

Kleinmond is the largest town in the area offering more extensive amenities including two primary schools, four shopping complexes, gyms, doctors and pharmacies.

Prices start from R250 000 for a 600 square metre plot and R550 000 for a two-bedroom apartment. Smaller homes are priced from R890 000 to R1.2 million while larger family homes cost between R1.4 million to R6.5 million.

Hermanus is now a thriving, bustling town with excellent beaches, superb sailing on its lagoon and a variety of other outdoor activities to enjoy.

Vacant land in Hermanus can be obtained from around R1 million and bachelor apartments for R450 000.

This timber-frame cottage is located close to the beach and adjacent to the green belt in Betty’s Bay. Occupying a stand of over 1000 square metres, the three-bedroom home is on the market through Pam Golding Properties for R1.1 million.

Larger apartments with multiple bedrooms are priced from R800 000, the entry level for homes is around R1.5 million and larger family homes located closer to the beach in prime suburbs can fetch anything from R6 million to R10 million.

Gansbaai and its satellite villages such as De Kelders, Franskraal and Kleinbaai are world-renowned as white shark cage-diving territory.

The growth in this niche tourism market has led to the area’s expansion in recent years offering a number of new developments with land costing as little as R400 000 for 600 square metres, says PGP.

A starter home on a sizeable plot costs less than R800 000, larger three- or four-bedroom houses are priced at R1 million and luxury beach houses are priced from R7 million to over R10 million, according to PGP

Financial pressure as rentals improve

At least 25% of houses sold in the second quarter of this year were the result of financial pressure on the household. According to John Loos, property strategist at FNB Home Loans, financial stress and pessimism about the future had contributed to the rising stock levels for estate agents.

He says that in the first quarter, low interest rates had been cited by estate agents as a key factor that influenced the outlook for home sales but in the second quarter this changed and houses are available on the market because the owners want to reduce their monthly costs.

Loos says that when interest rates rise – expected later this year or early next year – the financial strain will be even greater for homeowners who are already hard-pressed to meet their monthly commitments.

He says that regional property demand tends to be seasonal and that generally the outlook among estate agents remains rather low in winter.

In a separate development, Saul Geffen chief executive of ooba, one of the country’s mortgage originators, says that banks are continuing to relax their lending criteria and this is having an impact on sales figures.

He says the initial decline ratio fell by 5,8% in the second quarter of the year but remained high at 47,1%.

Loos says that fewer agents see the low interest rates as being a significant factor in boosting house sales and emphasised that agents point out that there has been a significant rise in the number of people seeking to downscale their living costs.

Meanwhile credit bureau and property rental management company, TPN says that 81% of tenants are currently in good standing with their landlords. According to TPN this is a sign that residential tenants are managing their credit better than in previous years.

The rental price bracket of between R3k and R7k proved to be performing particularly well with 84% of tenants in good standing and paying their rent on time.

However, in the price bracket below R3k as well as those above R12k had deteriorated and it says that this is further evidence of the financial strains that are currently facing many consumers. Only 75% of tenants living in homes costing less that R3k a month were in good standing while the percentage of paying more than R12k had fallen to 74%.

Non-payment of rental in both these brackets was 14%. Furthermore in the R12k-plus bracket only 67% of people paid on time while those who pay late was also at 14%.

It says the residential property markets in the Eastern and Western Cape continue to out-perform the markets in Gauteng and KwaZulu-Natal.

Rental Property to improve this year

While data availability for the South African rental market is somewhat sparse, available indicators suggest some improvement in the fundamentals driving the rental market, the FNB property barometer indicates.

"It is difficult to determine the level of rental demand, but we believe that the current economic and financial times may have led to some improvement in the demand side of the rental market too," said FNB property strategist John Loos.

He said household sector financial pressure could be a positive factor for the rental market, because it could increase the short-term appeal of renting for a certain group of financially stretched households.

The risks of interest rate hikes later in 2011 were also believed to be a positive for rental demand, as this could lead to some more cautious would-be home buyers adopting a "wait and see" approach, remaining in the rental market for longer and supporting rental demand.

"Our home-buying survey respondents suggest that, although having declined significantly since 2008-09, the percentage of home sellers selling in order to downscale due to financial pressure remains high at about 22%, and many of these sellers move into the rental market," Loos said.

As to how much of the rental market's performance was due to supply factors and how much due to demand-side forces was debatable, Loos said. "We believe that there are elements of both, particularly on the supply side due to weak buy-to-let buying in recent times. The net result, though, appears to be one of mild rental market strengthening through 2010."

Using data from Rode and Associates regarding flat rentals, it would appear that at least the flats component of the rental market had responded, Loos said.

"By major city, while one saw no fireworks yet, our calculations of flat rental averages per major city showed a broad increase in market rental inflation rates since the 2009 slump. The two-quarter moving average for Johannesburg showed the most impressive increase of 16.2% year on year as at the fourth quarter of 2010, while Pretoria showed the slowest rate of increase of 5.5%," he said.

More first time home buyers show confidence in market - FNB

There were more first time home buyers in the first quarter of 2011, indicating improved confidence in the property market, FNB Home Loans strategist John Loos said on Wednesday.

"The increase in first time buyer demand relative to the overall market demand is a good confidence indicator due to the greater degree of flexibility that an average first time buyer has in terms of timing his/her entry into the market," Loos said in a statement.

He said this reflected "improved new buyer confidence in lagged response to a dramatically improved interest rate environment since 2008".

It also showed improving confidence by the banks offering home loans.

First time buyers made up 22 percent of total buyers in the first quarter of the year, compared to 17 percent in the previous quarter.

"This percentage now compares favourably with the percentages recorded around late-2006, although the absolute volume would still be significantly lower than then because the overall market volumes are considerably lower these days compared to then," Loos said.

The "ageing buyer" trend seen in recent years was being reversed as a result of the improved interest rate and credit environment, and the resultant emergence of a more significant group of first time buyers.

Loos said using Deeds Office data on individuals' transactions, it was estimated that in the four quarters up to and including the first quarter of 2011, 15.3 percent of total buyers were aged 30 and below.

This was up from 14.7 percent in the fourth quarter of 2010, and even higher than the low point of 11.4 percent in the third quarter of 2009.

Loos said the most noticeable increase in market share was among the 31 to 40 years age group -- making up 28.1 percent of total buying in the first quarter of 2011.

This was up from 21.8 percent for the four quarters up to the third quarter of 2009.

The 41-50 year age increased its share of total buying from a 17.7 percent low as at the third quarter of 2008 to 21.7 percent as at the first quarter of 2011.

The 50-plus age group had seen its share drop from 48.8 percent as at the second quarter of 2009 to 35 percent as at the first quarter of 2011.

Loos warned potential first-time home buyers to be aware that inflation could rise, leading to increasing interest rates, so they had to be sure that they could absorb any increases.

"... Three percentage points [from prime rate of nine percent to a rate of 12 percent] would mean that on a bond amount of, say R700,000 at prime rate, the monthly instalment would increase by about R1410 per month."

He also reminded buyers to take into account above inflation increases in municipal rates and tariffs "which have become a far more significant property-related cost in recent years".

Positive sentiment for the Buy-to-Let Market

Data availability for the rental market is far less comprehensive than for the home buying market in South Africa.

However, with what data we have it would appear that the fundamentals of the rental market may be improving, and this may lead to rental market strengthening in 2011.
During the property boom years, buy-to-let buying of residential property was taking place at a far greater pace, implying that the supply of rental stock coming onto the market was growing rapidly.

This appears to no longer be the case. In the 4th quarter FNB Estate Agent Buy-to-Let survey, buy-to-let buying remained at a lowly estimated 7% of total buying, unchanged for the 2nd successive quarter, a far cry from the estimated 25% back early in 2004.

This buy-to-let weakness comes as little surprise, with the household sector still under very significant financial pressure, as well as being highly-indebted, while banks' credit criteria remain conservative by the standards of a few years ago.

This not only constrains the supply growth in rental stock, but also keeps a greater number of would-be first time home buyers in the rental market for longer than would otherwise be the case, thereby supporting rental demand.

In addition, very low house price inflation means that our property-related real prime rate, i.e. adjusting prime rate for house price inflation, remains positive (+5.4% in December 2010). This curtails the short term speculative component of buy-to-let buying, where buy-to-let buyers are more focused on profiting through short term capital growth on property outstripping interest rates.

This form of buying is believed to have been far more significant during the boom years, where at one stage of 2005 the property-related measure of real prime rate was negative to the tune of -25.3%, a speculator's paradise.

Lower interest rates and a growing economy (albeit mildly) may have also brought about a better quality of tenant.

According to credit bureau, TPN, there has been a broad improvement in the quality of tenants since early-2009. As at the 1st quarter of 2009, only 71% of tenants on TPN's records were "in good standing".

During the 2nd and 3rd quarters of 2010, this percentage has risen to 82% and 81% respectively, the highest percentages since back in the 1st half of 2008 prior to the national recession. Yes, many tenants, like home owners, were also affected by recession and high interest rates back then.

The more recent apparent improvement in tenant quality also bodes well for an improvement in the rental market.

Not surprisingly, therefore, StatsSA rental estimates have started to show a rental inflation acceleration.

Given the lack of supply growth in rental stock, and reason to believe that significant financial barriers to entry to home ownership exist at present, it came as little surprise that we started to see an upward turn in StatsSA's CPI home rental inflation survey numbers.

Done on a 3-monthly basis, inflation in actual residential rentals rose from 4.5% in June to 5.6% year-on-year in the September survey. This represents a turnaround from a steadily de-celerating rental inflation rate since back early in 2009.

The initial rental inflation rise nevertheless points to a still financially pressured household sector, with "smaller being better", and thus the fastest rental inflation acceleration took place in the flats category (8.6%, up from 6%). By comparison, townhouse rental inflation measured 4.4%, moderately up from 4% in the previous quarter's survey, while house rental inflation was virtually unchanged from the previous survey.

Rental inflation rise in 2011 will be important for an ultimate recovery in buy-to-let demand.

A lack of buy-to-let demand in recent years especially through 2010, implying slow growth in rental stock, is crucial to our belief that we will see some acceleration in rental inflation through 2011.

In addition, given our expectation that consumer price inflation will gradually rise further through 2011, after 2 successive months of increase late in 2010, it looks increasingly unlikely that the SARB will cut interest rates any further for the time being at least, and sideways movement in rates through 2011 is anticipated.

This may put the brakes on 1st time home buying, keeping more would-be home buyers in the rental market and thereby supporting rental demand.

An expected rise in rental inflation in turn has 2 possible effects. Firstly, given very low expected house price inflation, we believe that gross yields on residential property will rise through 2011, and this is a key pre-requisite to larger numbers of investors returning to the market at some future stage.

Secondly, however, it can have the shorter term effect of contributing to rising consumer price inflation which could ultimately mean rising interest rates (although Firstrand only expects interest rate hikes to commence early in 2012).

In the 4th quarter 2010 FNB Estate Agent Survey an increased portion of the sample of agents expected an improvement in 1st quarter 2011 buy-to-let buying. This drove the FNB Buy-to-Let Confidence Indicator slightly higher to 0.065 (scale +1 to -1) from a previous quarter's low point of 0.045.

This is an interesting turn in estate agent sentiment after 5 previous quarters of deterioration.

In our own opinion, any noticeable improvement buy-to-let buying may take somewhat longer. However, we do believe that the fundamentals that ultimately drive the buy-to-let market, i.e. a stronger rental market and higher yields on residential property, should improve significantly through the course of 2011, setting the buy-to-let market up for strengthening at a later stage.

*John Loos is a strategist at FNB Home Loans

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."