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Tough times reflect in slower buy-to-let property trends

Oct 11 2017 12:17

Cape Town - Although second home buying in South Africa doesn’t appear to have “fallen through the floor”, the FNB Estate Agent Survey does point to estimates in recent quarters dipping slightly as a percentage of total home buying.

The secondary home demand percentage in South Africa was mildly lower in the third quarter than in the second quarter - the second successive quarter of decline.

In addition, there was a quarterly decline in the estimated percentage of investment (buy-to-let) home buying. This is a mild increase in the "offloading" of investment properties, and the pricing power of sellers of these homes appears reduced, according to John Loos, household and property sector strategist at FNB.

"Perhaps it is to be expected that, in these tougher economic times, secondary home buying overall would be placed 'on the backburner' by many, given its non-essential nature, and that the levels of such home buying would be mediocre at best," explained Loos.

"Although two quarters does not yet constitute a confirmed trend, we would expect to see some decline in these current times of very weak household sector and consumer confidence, times which usually lead to a greater level of financial caution."

According to the FNB Estate Agent Survey, secondary residential property buying reached a multi-year high of 14.47% of total home buying in the first quarter of 2017 - the highest estimated percentage since the end of 2009. Since then, this estimate has declined mildly to 12.48% by the third quarter of 2017.

These levels remain far below the pre-2008 boom time levels, which exceeded 20% at times.

Buy-to-let and investment properties

The main category of secondary home buying is the buy-to-let category. This category showed a decline in the estimated percentage in the latest survey. The respondents estimated buy-to-let buying at 8.23% of total home buying, slightly down on the 9.77% of the second quarter.

One category of second home buying that has declined quite noticeably is the percentage of buyers “buying a home for use as a primary residence by a family member”.

The estimated holiday home buying percentage, however, has not yet shown a noticeable decline.

As for investment properties, Loos sees agents surveyed pointing to recent quarters showing a slightly higher estimated level of investment properties being sold due to having achieved lower-than-expected investment income, expressed as a percentage of total home selling.

"We have started to see a slight rise in the estimated percentage 'sold below previous purchase price', and have for some time already been seeing a marked rise in the estimated percentage being 'sold at purchase price' and not above, said Loos.

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