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Flat 2013 property market expected

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30 Nov 2012

It has been five tough years for the property market and there is still no real recovery on the horizon for 2013, says Seeff chairman, Samuel Seeff.

Much the same as this year however, buyers can expect the tight mortgage lending criteria and deposit requirements to persist and there is likely to be little real movement in the volume of mortgage loans granted next year.

He says they had hoped that to start seeing a return to more normalised conditions this year, but it seems that we will have to wait a bit longer before breaking out the property party cheer.

On the up side though, there have been some encouraging signs and a little more energy in the market this year, but continued uncertainty, low economic and job growth, high household debt levels and constrained mortgage granting are just simply weighing too heavily on the market.

“We have seen some excellent growth this year with our turnover up by close to 20 percent, predominantly in the primary residential sector, but the increased demand in the market has, on the whole, not really translated into any noteworthy increase in transaction volumes and prices.”

Sluggish economic fundamentals combined with low levels of mortgage credit granting are dampening movement in the market, he says.

“If we look at ooba’s latest data for example, we still see a first decline rate of about half of all their bond applications.”

What the increased demand is however doing, is helping to clear some of the oversupply of stock out of the market, an essential activity to pave the way for new stock to come onto the market.

On the whole though, Seeff predicts a flat market with only sideways movement for 2013.

Seeff says it remains business as usual in the affordable housing sector below R1.5 million, with more robust buying encouraged largely by the low interest rate.

The affordable housing sector is likely to see the bulk of demand and movement.

Much the same as this year however, buyers can expect the tight mortgage lending criteria and deposit requirements to persist and there is likely to be little real movement in the volume of mortgage loans granted next year.

Given the constrained economic conditions, the trend towards downscaling and off-loading secondary properties, especially in the coastal markets and in luxury golf and coastal estates is likely to continue, he says.

“We also anticipate that demand for rental properties will persist, but there is unlikely to be any significant uptick in rental yields.”

Prices will remain flat with only marginal growth in the lower and middle income sectors of the market where demand is most robust.

While Seeff has concluded a number of significant sales in the luxury sector above R20 million, he says that demand and prices are set to remain at subdued levels into 2013 and luxury buyers will be discerning about what they are looking for and how much they are prepared to pay.

Sellers will need to take cognisance of where the demand is and what buyers are prepared to pay if they hope to conclude a successful transaction.

In the secondary holiday and investment home markets, Seeff believes that we will see much the same as this year with pockets of excellence, but that demand and prices will on the whole remain subdued.

Given that no significant progress has been made to clear the distressed stock out of the market, Seeff expects that this will continue to impede normal demand and supply and trading conditions and says that it is imperative that some progress is made on these in the early part of next year.

On the whole, provided that the economy remains stable, we are unlikely to see any significant movement in interest rates and market conditions will remain heavily weighted in favour of buyers, he says.

“Sellers will need to take cognisance of where the demand is and what buyers are prepared to pay if they hope to conclude a successful transaction.”

“Buyers on the other hand will continue to find exceptional value and will be able to negotiate strongly given the subdued demand.”

Seeff says that rising utility and basic living costs will continue to eat into consumers’ wallets, a big constraining factor.

Add to this, the high transaction costs that are often overlooked.

Transfer duty, bond costs, legal fees and capital gains tax can amount to as much as 20 percent of the total transaction value and do not add to the asset value, he says.

Seeff believes that government will need to relook at taxes to boost sales to encourage greater home ownership and to boost sales at the top end of the market.

There are just too many factors that weigh on the market and stifle movement. It is five years on and transaction volumes are still hovering around 19 000 to 20 000 per month.

It is difficult to see how we are going to get to more normalised levels of around 30 000 to 35 000 per month, he says.

From an industry perspective, Seeff anticipates further consolidation with the bigger real estate brands absorbing the bulk of activity in the market.

Real estate professionals are likely to continue to operate under challenging conditions, earnings will remain under pressure and deals will still take long to wrap up particularly in areas where the councils are not able to provide efficient clearance figures and certificates, he says.

On the upside, he says that next year should hopefully see a greater influence in the industry by bodies such as the reconstituted Estate Agency Affairs Board and newly formed Real Estate Business Owners of South Africa who should be able to work together to ensure that new legislation that affects the industry does so with minimum impact.

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