South Africa: Investment Property Sours on Investors
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Business Day (Johannesburg)
22 July 2008
Posted to the web 22 July 2008
Nick Wilson
Johannesburg
GLOOM in the residential property market deepened yesterday with new figures showing that 10% of investment properties placed back on the market for sale are being sold for less than the purchase price, a situation described by an economist as a "shocker".
The First National Bank (FNB) residential property barometer also found the percentage of people selling because they planned to emigrate rose to 18% in the second quarter from 12% in the first.
According to the barometer, 28% of properties put back on the market are being sold at the purchase price and 51% at "10% above purchase price".
Property economist Erwin Rode said it was a " shocker" that 10% of investment property sales were at below the purchase prices.
Rode assumed that many of these people were buyers "within the last year, and with hindsight they have evidently over-extended themselves".
This represented a "terrible prognosis" for consumer spending, and it reinforced the recent FNB-Bureau of Economic Research consumer confidence index, which "dropped like a stone", from 12 to -6 from the first to the second quarter.
First National Bank property strategist John Loos said it was "likely" that investors selling properties below the purchase price had bought them in the past year or two.
Loos said these investors had expected capital growth to continue as it had during the residential boom years, and were "sorely disappointed".
"The chances of those who bought 10 or five years ago selling at purchase price or less is probably remote."
Loos said the rise from 12% to 18% in potential emigrants was "significant", and had "quite a lot to do with poor sentiment among minority groups".
He said Eskom's load-shedding "chaos" in January and "heightened jitters" after a change in the ruling African National Congress leadership at the organisation's Polokwane conference in December had weaken ed confidence.
Loos said the Zimbabwe crisis and perceptions that the government handled it "poorly" might contribute to the increase in people selling their homes with the intention of emigrating.
The residential property market was going to "get worse before it gets better", and the market would probably see a further decline in the next year, Loos said.
The barometer indicated a residential activity level of 4,42 out of a total of 10 during the second quarter, which was the lowest recorded in five years.
Loos said he expected a 10% drop in prices in nominal terms this year and early next year, but that sentiment would improve in 2010 because the Fifa World Cup would promote a "feel-good factor" and a lot of infrastructure projects would be completed.
Samuel Seeff, chairman of Seeff Properties, said that people who had bought second properties for investment were "definitely taking below what they paid last year and up to 10% to 15% below".
An Absa index showed that real house prices in the middle segment of the market dropped 6,3% year on year in May, the largest drop in 15 years.
Relevant Links
In the Standard Bank residential property gauge, median house prices fell to R550000 last month, a contraction of 11,3% year on year.
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