Gauteng homes unrealistically priced

16 Aug 2012

Gauteng house price growth recorded a high of 8.1 percent year-on-year (y/y) in the second quarter of 2012 from 6.9 percent in the first quarter.

Swanepoel says Gauteng estate agents still suggest an unrealistically priced market in the second quarter.

This is according to the FNB Gauteng House Price Index Q2 2012 report, which reveals that this is the fifth consecutive quarter of y/y price growth acceleration.

The average price of properties transacted in the Gauteng index was R887 633 in the second quarter.

While this may be encouraging news for homebuyers, the bank notes that the Gauteng property market is still unrealistically priced.

Writing in the report, FNB property analyst Theo Swanepoel points out that after a good run, the accelerating price growth trend may be nearing its peak.

Swanepoel explains that when examining quarter-on-quarter price growth, they saw a slowing in the pace of growth acceleration, from 2.3 percent in the previous quarter to 2.4 percent in the second quarter, after more significant increases in the previous quarters.

He says the bank’s opinion is based on an estate agents survey as well as the signs that the economy has been starting to slow recently.

According to the FNB Gauteng Estate Agent survey, the Gauteng Residential Demand Activity Indicator declined to 5.78 percent from 6.51 percent in the previous quarter.

“We caution about the interpretation of the second quarter Gauteng deterioration, as this is generally a seasonally weak period as the region heads into the winter months.”

When estate agents were asked to estimate the average percentage asking price drop on those properties where a price drop is required to make the sale, they revealed that the average drop has also moderated mildly from -13 percent, three quarters prior to -10 percent in Q2 2012.

The total Gauteng Demand Activity Indicator is now slightly lower than the level of six registered for the combined coastal metro regions.

Breaking the Demand Indicators up into the major metro regions, FNB says the Greater Johannesburg region is the weakest with a level of 5.71, while Cape Town was the strongest in the second quarter with a Demand rating of 6.18.

Swanepoel says Gauteng estate agents still suggest an unrealistically priced market in the second quarter.

Estate agents reveal that in the second quarter of 2012, Gauteng’s average time on the market increased slightly from the previous quarter’s 15 weeks to 15 weeks and 5 days.

This would suggest some broad improvement in pricing realism since early-2011.

However, he says they are of the opinion that a well balanced market, of a realistically priced market, would be one where the average time on the market was around two months, as was the case up until about early-2007.

He says this average time remains high and read in conjunction with the high percentage of sellers being required to drop their asking price to make a sale, the market can still be said to be unrealistically priced.

The percentage of properties sold at less than asking price was 87 percent according to the survey, which was unchanged from the previous quarter’s percentage.

When estate agents were asked to estimate the average percentage asking price drop on those properties where a price drop is required to make the sale, they revealed that the average drop has also moderated mildly from -13 percent, three quarters prior to -10 percent in Q2 2012.

The report reveals that first-time buyer demand in Gauteng remained high in Q2 2012 at 24 percent, although this figure is down on the 26 percent in Q1 2012 and 28 percent in Q4 2011.

The report reveals that first-time buyer demand in Gauteng remained high in Q2 2012 at 24 percent, although this figure is down on the 26 percent in Q1 2012 and 28 percent in Q4 2011.

Gauteng residential supply appears to be slightly less constrained in the second quarter, points out Swanepoel.

While bad news for estate agents, residential stock constraints are good from a point of view of market strength and property price performance, he says.

In the near term, estate agents cite stock constraints as an issue from 16 percent in the previous quarter to 12 percent in Q2 2012.

Estate agents report a fragile financial state of Gauteng homeowners with an estimated 22 percent of sellers selling in order to downscale due to financial pressure.

This figure was 21 percent in the first quarter.

The percentage of sellers selling in order to upgrade has declined to 13 percent in Q2 2012 from 19 percent in Q2 2011.

Estate agents point to a slowing in residential demand in the second quarter and FNB expects the Gauteng house price growth to peak in the second half of 2012 and taper off mildly back to lower single digit growth. – Denise Mhlanga

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