Change is the only certainty
Suzanne Necker was an insightful woman. The 18th century wife of the French finance minister wrote: “Fortune does not change men, it unmasks them.” Much the same can be said about the property market. Fortune (or the lack thereof) does not change real-estate, but it does peel of its mask. This has been clearly apparent in the past 5 years in South Africa. No-one questions the fact that real-estate is a medium to long-term wealth building tool. But the fortunes of the past few years has unmasked the fragility of this asset class and given us insights into the economy as a whole.
In the ebb and flow of today's residential property market– exchange rates, interest rates, inflation rates and business confidence levels, nothing is static. In fact these very factors unmask the market value of properties. During the boom market from 2000 until Q2 of 2007, determining the value of your property was fairly simple. Rental rates and selling prices had been rising steadily, vacancies were low and construction was booming. Sellers were smiling. Buyers had easy access to finance. But consumers do not adapt to change quickly. This is evident in the unrealistic, even stratospheric prices some sellers are asking for their properties. In 2005 just 43, 5% of properties sold for less than the asking price. Today that figure has climbed to 81% -a sad indictment of sellers’ expectations and estate-agent complicity. As a result properties are taking much longer to sell. In 2005 it took, on average, only 7 weeks to sell a house. In 2010 it has more than doubled, to 15 weeks and 4 days.
The change in credit-extension, a culmination of the introduction of the NCA in 2007 and a fear-inducing recession in 2008/9 has seen the percentage of buy-to-let investors drop from 20% in 2005 to just 7% in 2010. First-time buyers have been particularly hard it and the change has certainly not been “as good as a holiday”. Only 15% of transactions in the 3rd quarter of 2010 were by 1st-timers while in 2005 that number stood at 28, 3%. Their average age has moved from 31 to 38 years old, an indication of a shift to the next life-stage, an older, more financially secure buyer.
In the commercial property market, vacancies remain high. Recent data from the industrial property market suggests that manufacturing struggled more during the recession than did other economic sectors. Some landlords are looking to improve liquidity or ease cash flow by down-sizing, selling some assets or sub-letting. As a result many commercial property values have seen declines reflective of the pain experienced in the residential sector.
Change is a certainty. Property professionals, developers, investors, buyers and sellers have no option but to stay up-to-date with fluctuating property prices. As a pre-cursor for informed decisions, Auto Valuation Models (AVM) using sophisticated statistical analysis have become a powerful and necessary tool. These predictive market values are easily accessible, available online or via a mobile phone. Knowledge Factory, a leading geo-business insights company, has released the next step forward, a peep into the future with FutureVal. This looks at a property’s performance and predicts its value 12 months from now.
With the mask off, decision makers are enabled to assess risk carefully before plunging into the changeable but rewarding world of real-estate. For more information please visit www.evaluatenow.co.za.
Dieter Deppisch
Property Data Research, Knowledge Factory
3 December 2010