Latest statistics from First National Bank reveal some interesting trends in the property market. The ‘property barometer’ report released on the 19th of October lists predominant reasons given by sellers for selling their primary residences. Also known as the FNB Estate Agent Survey, the property barometer report provides valuable insight into the current developments and fluctuations in the market.
Throughout the first, second and third quarters of 2012 the percentage of people who sold residential properties in order to downscale due to financial pressure has remained consistent at 20%. While this number is indicative of the fact that even considering the low interest rate and its subsequent effect on home loans and other debts, South African households are still taking financial strain. This 20% is, however, significantly lower than the 25% of sellers who downscaled due to financial pressure in the second quarter of 2011, and a vast improvement on the 34% in the second quarter of 2009.
According to the report’s author, FNB’s Household and Property Sector Strategist John Loos, this high percentage also suggests that many South African households are being practical and taking action to reduce their financial debts and stabilize financially before they default on their financial obligations. These statistics also show that 16% of sellers in the third quarter did so in order to upgrade their lifestyles and homes– indicating that there are South Africans who are still able to progress and enhance their living conditions.
Other figures in the report show that 21% of sellers are downgrading as a result of life stages, 7% relocated within South Africa, and 15% sold their homes as a result of a change in family structure.
Another notable conclusion that can be drawn from this report is that the biggest improvement in the percentage of sellers downscaling due to financial pressure is the decline since 2009 of these sellers among the lower income sectors. This particular lower income market (areas that have an average house price of around R731 500) has consisted of an average of 23% of the total number of those downscaling due to financial pressure over the last 4 quarters – a number that has previously and typically been much higher. At the height of the recession in 2008 and 2009, for instance, this percentage was around 38, with a much larger gap between the number of lower and higher net worth income segments.
Loos also points out that it is clear that the public’s perception is that rental growth has overtaken house price growth slightly in recent times, which in turn reduces the advantages of renting – at least for one’s cash flow.
Of those who sold their homes in order to downscale the second quarter of 2011 an estimated 51% rented property after selling while 49% purchased cheaper properties. In the third quarter of 2012, however, 59% of sellers have bought homes while only 41% rented after selling. It appears that to those who sell their property in order to downscale, the rental option is looking much less attractive than simply buying a smaller or cheaper home.
Thus it will seem that South Africans in general are keen to create a financial environment that will allow them to financially stabilize – even if it means downscaling. With the drastic increases in municipal rates and taxes as well as the consistent increase in electricity costs, it is perhaps essential that more homeowners consider the state of their household balance sheets.