Buyers or Sellers Market - the flip of a coin?

Buyers or Sellers Market - the flip of a coin?

Category PROPERTY

Buyers or Sellers Market - the flip of a coin?

In a Buyers Market quite simply, supply exceeds demand as opposed to a Seller's market where demand exceeds supply.

South Africa generally at the moment experiences a buyer's market across most property segments.

According to the recently issued FNB Property Barometer negative growth has been the predominant factor across South Africa with only but a few regions not in line with the statistical trends dictated.

An assessment of one of the main regions in Gauteng - Centurion in Pretoria clearly acknowledges the fact that Centurion finds itself amidst a Buyers Market. There will always be exceptions to the rule but average pricing across all residential property categories indicate low or even negative growth.

Centurion vs George

To put this in perspective, average values amongst the two main categories - freehold and sectional titles - for the past 3 years (2020 still in progress) reflect as follows for the Centurion region;

The two price ranges performing well in the Centurion region was indeed Sectional Titles in the range R800,000 to R 1,500,000 and freehold houses in the range R 1,500,000 and R2,000,000.

George in the Western Cape along the Garden Route appeared to have experienced a more favorable climate than the Gauteng based region but specific cognizance should be taken of the fact that the median Freehold value is lower than its Gauteng counterpart.

It is noticeable that since 2017 to 2018 Gauteng's Centurion has shown a graduate increase in sales volume despite the fact that capital growth was stagnant and still remain as such. These sales volumes have however flattened to similar volumes during the course of 2018 and 2019.

George showing a steady decline in sales volume of approximately 5% per annum however - has shown constant substantial positive growth depicted in the median prices achieved.

The positive growth in value can be attributed to the fact that George has been identified as one of the best towns to live in in South Africa and as a result, assets that do become available in popular price bands are high in demand and achieve higher sales values.

Positive capital growth and increased selling prices are not symptoms of a Buyers market.

Demand for property in the more affordable price bands to a large extent exceeds supply in George yet the decline in sales volume could be attributed to the fact that Buyers migrating to George find it more difficult to sell their assets in other regions and therefore opt for rental options in George whilst they wait for their own assets to sell. The reduced sales volumes therefore attributed to the fact that George is affected by other regions experiencing a relatively aggressive Buyers market.

This rent-before-buying approach, albeit, slightly risky, creates adequate time for such prospective purchasers to commit to short term leases whilst they conduct proper due diligence of their new place of residence to identify where they'd rather stay. Short term rentals prior to acquisition has therefore become a common trend in George.

The impact hereof will force a slight price correction in George as buyers, specifically ones from regions other than George itself, now has more time to consider more options and therefore not making emotional buying decisions before they have to return on their flights.

Demand for rental property in George is currently high in just about all price brackets with new assets being introduced continuously as the active residential development node in this area makes new stock available.

The impact of the current COVID-19 "pandemic" will still become evident in these regions as current sales volumes for 2020 already reflect negative growth in terms of sales volumes for both regions.

Cognizance should be taken of the fact that there will probably be a delay in transfers and property registrations as a result of the current lockdown. This will impact statistical data and trends and could cause unnecessary panic.

Currently the prospects in both regions indicate that sales volumes for the year could decline by as much as 30% given a number of factors.

It should be reiterated though that COVID-19 can not take all the praise for the downturn in sales volume as a number of other factors affect the negative perception of the South African economy and the challenges it imposes on investment scenarios and the property sector in particular.

On the upside of a predominantly negative perception of the South African economy, South Africa's prime interest rate has been further reduced to 8.75%. It represents a 20+ year low other than the 8.5% in mid 2012.

We are excited about the fact that the low interest rate and relaxed policy towards transfer duty exemption up to R1,0million will stimulate buyers to make use of the low cost of finance and knowledge of the fact that this is as good a time as ever to commit to the property market.

As a buyer in the current market, you could have your portfolio pre-assessed by our bond origination partner - Greendoor Home Loans Garden Route - prior to commitment of any deal to be certain that the banks - currently ravenous for new business - will split hairs in offering you the best interest rate in order to procure your interest.

I would encourage any individual to consider participation in this favorable financing festival - a platform of so many assets to choose from with the knowledge that the borrowed capital is cheap

Further to defining the two market types,

There may be a misconception by Buyers that all prices in the residential market is negotiable.

Aside from the fact that there are two extremes being a Buyers and Sellers market, there is also a large middle ground and some regions may have the benefit of these more favorable scenarios.

Under such circumstances it is important for all roll players involved to have knowledgeable assistance such as the skills portrayed by our ambassadors to clarify matters relevant to the current property sector.

During this phase of the market, the degree of negotiation is often more extensive as the buyer and seller would have equal leverage to transactions at hand.

Buyers should be cautious to offend sellers by making ridiculous offers - the market may be challenged but it is certainly not distressed.

South Africa would find it difficult to survive another distressed market phase as we experienced during the 2008-2013 period specifically given the fact that the market has never really recovered enough since 2014 to force a further price correction in the current market.

After all, growth has been predominantly lateral and slow.

Time on the Market

FNB's statistical reports dictate at Provincial level that assets remain on the market at the moment anything between 14,9 to 20.64 weeks, depending on the Province and the price range relevant.

An assessment of your own circumstances as a Seller would dictate how aggressively you should price your house in order to avoid extended marketing periods.

Correctly priced assets could still sell within a matter of hours.

Advise to Sellers

It is important for Sellers to take note of the following important aspects;

• An exclusive marketing approach as opposed to an open mandates has proven to reduce your marketing timeline by as much as 2 to 3 weeks.
• Consider the appointment of a competent, knowledgeable property professional whom is experienced to guide you during these challenging times
• If you're going to sell in this market, be sure to price your property correctly.
• Maintain your property and invest in high quality pictures and technology for marketing exposure.
• Give serious consideration to offers made towards the sale of your house.

Conclusion

Be certain of the fact that no matter what the economic status of a country, any property market is cyclical and there will be opportunities worth considering in any market.

If prices become over inflated, buyers appetite will deteriorate and the market will correct itself relatively quickly.

Sellers should be aware of the fact that the market is transparent and relevant sales data is available not only to real estate professionals but also to the buyers out there.

Buyers on the other hand should make informed decisions when leaping to large financial decisions such as buying a house and make use of information available.

When either party makes use of the services of our real estate ambassadors, such available information and the interpretation thereof will be put into perspective to facilitate the ease of making informed decisions - ultimately creating matrimony amongst roll players that contribute to favorable outcomes.

In light of the social distancing guidelines and relevant financial impact COVID-19 has on the real estate market, KPS have also set in motion a plan to accommodate our Sellers portfolio for the economic and financial aftermath hereof.

Be sure to monitor our social media pages and website for announcements to follow.

Author: Johann Cronje - Principal