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Property market reality-check in five charts

A look at average time on market, secondary home ownership and emigration selling …

It’s widely known – among Moneyweb readers anyway – that the residential property market has been flat in real terms over the past decade. But FNB’s August House Price Index reveals a number of details and trends that are not as apparent, especially when looking at the data month-by-month.

1. 96% of sellers have had to drop their selling price

By the second quarter of 2018 (which the August Property Barometer reports on), 96 of every 100 sellers had to drop their asking price. John Loos, household and property sector strategist at FNB, cautions about volatility between quarters (91% in Q1), but this is up significantly from 78% in 2014.

“The evidence suggests that asking prices, on average, have become less realistic in recent years,” says Loos. The survey shows that the estimated asking price drop increased from -8.2% in the first quarter to -9.2% in the second. Therefore, says Loos “in the second quarter of 2018, our key survey responses related to ‘price realism’ reflect an apparent quarterly deterioration in the balance between demand and supply of homes”.

2. The average time of homes on the market is 114 days

On average, houses are now on the market for a lot longer. The current average, from the bank’s Estate Agent Survey, is 16 weeks and four days, “noticeably” higher than the 11 weeks and one day in early 2016. The current length of time is not too far off historical highs over the past decade. The 12-week mark is “more or less” what FNB sees as equilibrium.

3. Secondary home ownership has been flat for roughly five years

“Secondary properties, as expressed as a percentage of total properties owned by individuals, has declined mildly of late,” says Loos. As of July, this number is at 16.24% from 16.31% roughly a year prior. Secondary residential buying (not ownership) has seen a noticeable decline as a percentage of total home buying. In Q2, this number had declined to 9.91% from a medium-term high of 14.47% in the first quarter of last year.

4. Emigration selling of residential property has doubled since 2013

The survey tracks three non-cyclical motives for selling: due to a change in family structure, for safety and security reasons, and in order to emigrate. Loos says the “former two have moved more or less sideways in recent years, but emigration-related selling has risen noticeably since 2013 on the back of weakening sentiment in South Africa often related to concerns over its long term policy and political direction. From a low of 2% of total selling, the emigration motive has risen to 7.8% of total selling by the second quarter of 2018.”

5. The home loan market is more competitive

On the plus side, Loos says the “mediocre” growth in the market has “seemingly encouraged a more competitive mortgage lending environment.” He cites stats from bond originator Ooba, which, when collated into an ‘effective approval rate’, shows a significant improvement of eight percentage points from 66.4% in the three months to September 2016 to 74.4% in the three months to July 2018. Home loan pricing has also been squeezed. Over a similar period, “the average weighted differential from prime rate, charged by mortgage lenders on new loans approved through Ooba, has declined from +0.5 of a percentage point above prime rate as at July 2016 to +0.12 of a percentage point above prime rate as at July 2018.”

* * *

FNB’s House Price Index slowed to 3.5%, from a revised 3.9% year-on-year in July. Using CPI data for July (August figures are not yet available), Loos says that real house prices declined by 1.2% in the month (inflation was 5.1%).

* Hilton Tarrant works at YFM. He can still be contacted at hilton@moneyweb.co.za.

COMMENTS   15

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The anc policies have managed to kill virtually every market in the country. The result! Nothing works and the cost of living has gotten more expensive. Look at the state of Government finances, service delivery, education, the Rand, health, everything….. All revealed when people start voting with their feet as shown in the sale of properties due to emigration. Well done anc (another new corruption) ….!!

Unfortunately I have seen this mess all over the African countries I travelled and worked in. No service delivery, no maintenance, basic commodities (e.g. power, water, food) is insanely expensive, corruption is beyond control.
Reality is every new African leader has zero interest solving any of their respective country’s issues. There main concern is that: Now it is their time to eat!

We were delusional thinking SA would not go the typical African route!

You would think that as a 100+ years old organisation the ANC would know this? Think again as they make all the same mistakes (of failed African countries) and cannot seem to learn from any of their mistakes at all.

Wait…Hold up. I am just trying to understand the logic. This article was about a dip in the property market. We all know that all markets though natural ebbs and flows.

‘No service delivery, no maintenance, basic commodities (e.g. power, water, food) is insanely expensive, corruption is beyond control.’

I’m just trying to figure out how we got to your above comment…Just seems like an unrelated rant to me…

There are so many industries tied to the property sector if you think about it, it is incredible & scary. If somebody draws up a list of affected industries and presents it to our die hard Commies, I wonder what the response would be ? Do these people even realize the devil they are flirting with ?

No surprises and its time the housing market correct itself as everyone still have the mind-set of 2008 – in for the quick buck. First time owners cannot enter the market at all due to high rental [no savings for a deposit] and extremely selling prices for a “mediocre run of the mill property”, especially after commission has been added [For some reason, agents aren’t prepared to “negotiate” but boy oh boy do the banks and estate agencies demand the conveyancing firm to negotiate their fee structure – the conveyancing firm who’s taking the highest risk. We’re all paying the price for extremely high taxes, personal and otherwise and it’s no wonder that emigration is the highest percentage it’s been in the last 10 years. Emigrate to Australia, earn a higher income, lower taxes and better living standards and you’re in a position to purchase a property in CASH within 2 years.

So lets do the numbers Christina. The average house price in Sydney is around $900,000 (2016 price plus a little bit of growth for another 24 months). https://www.livingin-australia.com/australian-house-prices/ ).

So to be able to buy your property in CASH, an individual needs to earn $450k after tax and around $780k before tax. Good luck with that.

The most affordable city would have put you back around $500k ($250k after tax).

I have excluded the outback towns because:
1. There is little work and therefore low salaries
2. No one wants to live there

Lets stay on the topic of taxation. On your above salary that you will be earning in the land of plenty you will be paying on average 43% tax. The same as in SA on the same amount (PPP adjusted).

https://www.ato.gov.au/Rates/Individual-income-tax-rates/
http://www.sars.gov.za/Tax-Rates/Income-Tax/Pages/Rates%20of%20Tax%20for%20Individuals.aspx

Please add a healthcare levy of 3%. (Total = 46%)
Taxation myth busted.

I do have one questions though.

Robert-in-Sydney is that you?

Could you clarify a few things?
1. Healthcare levy – is that the medical aid for the government provided health service or do you have to pay extra for it? (I know there are different private health insurance schemes, I am interested in the public health care.
2. How does their bond rate compares with the SA rate?
3. I guess in Oz you do not have to get private security for your home and public schools are good enough, correct me if I am wrong.
4. How good is the social safety net, specially for old people? Do you have to pay for medical insurance after you retire and how much?

Hmm.. old Rob has been awfully quiet lately. I have family and friends in Australia and two daughters in the UK;it’s not a cake walk but it feels a lot safer than in SA and people get on with their lives without bothering too much about politics and the little corruption that does occur.

@ The Hun

1.Medicare levy: For government funded healthcare. Depends on where you live and what kind of care you require but provides excellent care, even if you sometimes have to wait a while. Co pays applies for meds. Private healthcare is extra but you get a partial rebate. All in all private healthcare in SA is better quality but comes at a price.
My apologies, the proposal for an increase was scrapped recently so the effective rate is still 2%.

2. Gov bonds? Have a look on the inet.

3. No private security needed, police is effective and everywhere. Just need common sense as burglaries and home invasions happens everywhere, even Sydney. (La-La land does not exist contrary to what most SA-to-Aus immigrants wants to believe and preach).
Also enough social problems (reported in the UK)
https://www.independent.co.uk/news/world/australasia/roebourne-western-australia-paedophile-epidemic-child-sex-abuse-simon-mcgurk-a7951946.html

Schools: Once again depends on where you live. Some gov schools require metal detectors (for real) and others are top notch. Priv schools is the same rip off than in SA, will set you back $7k – $10k/year sans extras. All in all Aus gov schools on par with WC gov schools in SA, i.e. good.

4. Age Pension and Disability Support Pension have a 10-year qualifying residence requirement, a waiting period and some other barriers to prevent abuse.
https://www.dss.gov.au/about-the-department/international/policy/social-security-payments-residence-criteria

5. Decline in Aus property prices will probably accelerate when interest rates are lifted https://www.corelogic.com.au/research/monthly-indices
Under pressure, the same as most countries really.

Home is where the hart is.
Good luck

@Prins
All this does not affect me, I am a pensioner and have no hope of emigrating to Oz. The reason I asked is that the price of a house is only a part of the total cost of housing. In SA you have to budget for expenses what you do not have to worry about in lot of other countries like security, private health insurance and schooling.
By bond I mean housing bond not government bond rate. To be more realistic let say in the case of a middle class couple, both teachers, what is the maximum bond they can qualify for in SA and in Sydney? I know traditionally in SA your bond repayment was supposed to be less than a third of your income, but I have not had a bond for over 20 years. Also, AFAIK in Oz the agent’s commission is much lower than in SA. Somebody mentioned 2%.

Great example of liquidity premium that needs to be priced in – 114 days om average to sell vs click on my mouse to sell a share.

…I love that one! 😉

Plus, let’s not forget also COST of buying & selling: estate agent commission, anything between 3-6% + VAT.

And if you purchase, Transfer Duty (above R900K) to SARS; bank’s bond registration fees, and attorneys fees.

But maybe you pay more than 6% when you buy or sell a share? 😉

The housing market lags the truth in the market by about 6-9 months, so things are not looking good.

It is as if the ANC is trying to destroy the market completely so that it can pick itself up again.

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