Baby Boomers worth their weight in gold

Although it is the Generation X population, which consists of adults between the ages of 31 and 45, that are leading the property market recovery,  baby boomers are making their presence felt in the market, says Adrian Goslett, CEO of RE/MAX of Southern Africa.

Goslett says that as more and more South African consumers reach retirement age, downsizing boomers aged between 47 and 65 years old could bring about further resurgence in the property market. “With many of these homeowners having built equity in their homes over the years, as well as other investments, boomers may be the first demographic to move in the emerging market when other ages groups are still struggling to meet the stringent lending criteria required by banks,” he says.

Goslett notes that because their children have moved out of home, the boomer generation is expected to trade their suburban homes for lifestyle options that meet their current needs. This, coupled with that fact that many boomers are looking to buy additional property as an investment to supplement their retirement income, or are assisting their children in making property purchases, makes them a valuable asset to the economy. “Many of the real estate agents have baby boomer clients who already own property and are looking to purchase an investment or retirement property. A number of these buyers are purchasing property that they can rent out to generate an income or to move into once they reach the age where they wish to retire,” says Goslett.

Statistics show that the population demographic in South Africa sees baby boomers making up a much smaller percentage of the population than Generation X.  Between the years 1950 and 1965 there were 13,5 million births in South Africa (baby boomers) compared with the 18,74 million births (Generation X) between 1965 and 1985. According to John Loos, FNB Home Loan Strategist, while the most noticeable increase in the property buying share was among the Generation X group who made up 28,1% of the total purchases in the first quarter of 2011, the Baby Boomers buying share increased to 21.17% of the total purchases in the first quarter of this year, despite being a demographically smaller group.  The FNB Property Barometer for the third quarter of 2011 stated that 22% of all buyers gave downscaling with life-stage as a reason for selling their property.

Trends show that boomers tend to favour areas that attract a wide variety of people and they generally purchase property that is close to their original homes or primary residence. Boomers seem to like open-floor plans, lots of storage space and specifically his and hers master bedroom cupboards and gardens featuring decks. Other amenities on the must-have list include fireplaces and bars.

“The baby boomer generation has driven the South African economy for years and continues to contribute towards the property market’s recovery in their retirement.  Many of these investors are looking at buying properties based on the rental income they will generate and not necessarily for their resale potential. The baby boomers are a very diverse group and cannot be described in generalities, but those boomers who are financially secure are actively seeking to buy property and they are taking advantage of the opportunities and value available in today’s market,” Goslett concludes.

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What to ask when buying Property ?

Property remains a viable asset class in which to invest and still forms one of the most important investment cornerstones for South Africans. For those who are currently looking at investing in a property, the timing couldn’t be better.

Since buyers’ market conditions prevail, those who do their homework thoroughly and follow sound investment advice are sure to reap solid returns in the long run.

There is no doubt that South Africans are spoilt for choice when it comes to property investment options. From bachelor flats and apartments to game farms and small holdings and everything in between, buyers have a range of property types from which to choose.

However, location remains the most important factor when purchasing a property – no matter what type of property it is – and so buyers need to select the area in which they invest carefully. Buyers also need to take the time to investigate the relevant properties on offer in their area of choice and compare the costs per square metre, the fittings and finishes etc.

When looking to invest in a residential property as a primary home, buyers need to consider what their needs are and identify which accommodation options best suit their requirements. Those buyers looking to invest in leisure or rental property will have completely different requirements to buy-to-live purchasers and those who are looking to buy vacant land.

For example, first time, single buyers looking to get their foot in the door should consider investing in an apartment while townhouses, on the other hand, are an ideal property type for young couples or those wanting to scale down for retirement.

Those purchasing a property in a sectional-title scheme or apartment building should check the rules and regulations governing the building or scheme, particularly ones regarding pets, visitor access, parking and maintenance.

While single detached dwellings are by far the most common form of housing in South Africa, gated communities are another popular option of freehold property, because homeowners often have access to a range of facilities and amenities within the estate. These kinds of properties are very popular among families or young couples who want to start a family in the near future. This is because of the lifestyle elements they offer where children are free to ride their bikes around the neighbourhood, play in the communal parks or play areas with the security of the estate to ensure residents safety.

No matter what type of property buyers are considering purchasing; there are some questions buyers need to ask before making one of the biggest financial commitments of a lifetime. These include:

Why is this a good area in which to invest?

•Are property values appreciating in the area? By how much?
•Is the neighbourhood well maintained?
•Is the neighbourhood safe?
•Are more and more houses being built or bought in the area?
•Is the area mostly zoned for residential properties?
•Are roads well maintained and is there a proper infrastructure in place?
Other important location considerations include:

•Is the area zoned for heavy commercial development?
•Are there noisy highways, airports, or railroads nearby?
•Is there heavy traffic in the area?
•Are future highways or developments planned within the area?
•Are there wastewater plants or landfills nearby?
When buying vacant land, buyers should ask the following questions:

•Are sewer and water lines available?
•How much fill removal or fill replacement is necessary?
•The cost of removing large rocks and boulders in order to build?
•Is there proper drainage on the land?
•Is the soil suitable for construction?
At the end of the day, a good investment can only be assured if a buyer has done all the necessary homework and comparisons and is sure that the investment they are making is worth the financial commitment they are laying down to acquire it. While the recession has meant that property is not appreciating at the rate it once was, astute property investments still have the ability to provide investors with solid gains.

*Adrian Goslett is the CEO of RE/MAX of Southern Africa

Timing is Everything !

Seasonality is a well-established phenomenon in the global property market and, although it follows a different time frame, it is also clearly evident in the local property market. Seasonality essentially refers to changes in sales volumes and sales prices during the same calendar month from year to year, that reveal a similar magnitude and direction.

This seasonality is caused by natural factors such as the weather, administrative dates such as the beginning and end of the school year as well as social, cultural or religious traditions which include fixed holidays such as Christmas.

"Regardless of the overall trend in the property market, or the specific phase of the property cycle in a certain sector of the market, the property market displays seasonality, with higher prices driven by increased activity at certain times of the year. In South Africa, during the spring and summer months, sales activity increases and, as a natural consequence, property prices are firmer on the back of this increased demand. The effect on prices may not always be remarkable – but the effect on sales activity is often quite noticeable," explains Adrian Goslett, CEO of RE/MAX of Southern Africa.

He adds that two seasonal factors are at play during our spring and summer months.

"Firstly, the summer brings lush gardens, green grass and colourful flowers, and this certainly goes some way to create a favourable first impression among potential buyers. Secondly, the school year in South Africa runs from mid-January to early December, and families planning to relocate always prefer to do so at the end of the year to allow the children to complete a school year at one school and to start afresh at a new school at the beginning of the new year," he says.

But seasonality extends further into other sub-sectors of the market.

"In the student accommodation sector spring brings an increase in activity as students going to university in the new year look for accommodation and those who have completed their last year of study move away. While many people are on holiday in December, this does not detract from the seasonality of property sales during the summer, but simply shifts the locus of the seasonal upswing to the coastal and holiday towns in the country," comments Goslett.

Seasonality is not simply a phenomenon of interest to estate agents; it also has implications for buyers and sellers. Prices may not boom during the seasonal upturn during the spring and summer months, but the average percentage by which a seller needs to reduce the asking price to achieve a sale may be noticeably lower than in the winter months. This reflects the increase in potential buyers during these seasonal peaks, and more buyers mean a better chance of selling the property at a higher price.

Buyers and sellers who understand the seasonality of the property market are able to make better informed decisions. For example, buyers looking for student accommodation may find few available properties in April when all available student accommodation is fully occupied, but may be able to acquire such a property at a better price at the end of the year when more properties become available as students complete their studies.

"Understanding the seasonality of the property industry allows buyers and sellers to maintain a longer-term perspective on the immediate state of a specific property sector. Sellers considering taking a property off the market just before the summer holidays could well miss a sales opportunity given the uptick in interest during this time. Similarly, buyers should bear the seasonal factors in mind when making an offer on a property, particularly in areas where the effect of seasonality is particularly evident, such as in coastal towns and other holiday destinations," concludes Goslett.

Where are we in the Property Cycle?

As 2011 kicks off Adrian Goslett, CEO of RE/MAX of Southern Africa, takes a look at where South Africa’s property market is in the property cycle and what this means for homebuyers and sellers…

Cycles, a well-known phenomena in the world of economics, are evident in all economic sectors including the property market. These cycles are predictable long-term patterns that can be divided into three distinct stages known as boom, slump and recovery.

"The cycles are predictable in that booms are followed by slumps and then by a market recovery, which gives rise to the next boom as the cycle continues. The stages in the cycle are driven by various factors that affect the supply and demand equation in a particular market. In the property market, for example, supply and demand are driven by factors such as the interest rates, consumer debt-to-income ratios, the affordability of property and consumer confidence, among others," explains Goslett.

However, while predictable, these cycles are rarely regular, since the length and depth or intensity of each stage within each cycle are influenced by the particular confluence of driving factors and their effect on supply and demand.

The current property market cycle in South Africa provides a very clear example of how various factors determine the cycles.

"We experienced an unusually intense boom in the mid-2000s, with demand driven by a rapidly growing middle class with access to easy credit at low interest rates during a time of exceptional economic growth in South Africa. Property price inflation reached a peak of almost 25 percent, property sales were brisk and property development was robust. But in 2006 an unusually intense slump driven by an unusual confluence of factors emerged. Interest rates rose sharply, the implementation of the National Credit Act constrained lending and inflation soared as we entered a global and local recession, which negatively affected consumer confidence," notes Goslett.

As a result of the confluence of all these driving factors it became increasingly difficult for homebuyers to obtain credit and homeowners faced severe financial difficulties in meeting their financial obligations. Many of these overstretched homeowners tried to sell their properties and this, combined with the robust property development during the boom, created an oversupply of properties in certain sections of the market.

"This, coupled with the decline in demand driven by tight credit and affordability issues, saw the market enter a slump in which sales activity, house price inflation and new development slowed," explains Goslett.

However, recovery after a slump is inevitable.

"We have already seen the interest rates drop to historic lows, which, along with inflation back within target range, have also boosted general economic recovery. Lower interest rates, improved general economic conditions and the correction in house prices to more realistic levels have all led to an improvement in affordability. Sales activity is increasing as the banks slowly and cautiously start lending again, evidenced by improved approval rates of home loan applications. The supply and demand equation is beginning to balance again as the constraints on demand are lifted and already a shortage of properties is evident in certain areas. Given these realities, the South African property market appears to be firmly in the recovery phase of the cycle," comments Goslett

What does the property cycle mean to homeowners and potential homebuyers?

It is widely believed that the property cycle is a tool for "timing" an investment in property.

"That said, buying at the height of a boom and selling during a slump can result in a disappointing return on investment," says Goslett. He adds that the real fundamental lesson from the property cycle is that property is a long-term investment. "Excellent property returns are often only achievable if the property is held for at least a full property cycle, which generally stretches over seven to 10 years in South Africa," he says.

He says that while we are in for what may well be a long and steady recovery phase, property investors and homeowners can take comfort in the knowledge that the slump seems to have passed.

"Hence, we can expect a boom to follow. Although the boom is unlikely to be as intense as that of the early-2000s, it is sure to follow and will reveal to those who have held onto their properties during the recent and exceptionally tough slump phase that an investment in property remains one of the best long-term investments anyone can make," concludes Goslett.