The latest FNB Estate Agent Home Selling Survey has revealed the key reasons for selling property and what this tells us about the state of the South African property market.
In the FNB Estate Agent Survey respondents are asked to provide the key reasons for homeowners selling their properties.
The 8 main reasons for selling properties are:
- Downscaling due to financial pressure
- Downscaling with Life Stage
- Emigrating
- Relocating to Elsewhere in SA
- Upgrading
- Moving for Safety and Security Reasons
- Change in Family Structure(Death, Divorce, etc)
- Moving to be Closer to Amenities
Pro-cyclical reasons for selling are receding
FNB considers four of these reasons to be pro-cyclical - they should grow in significance when the market is strong and recede when the market is weak. These 4 reasons are “Selling in order to upgrade”, Selling in order to downscale due to life stage”, “Selling in order to relocate to another region”, and “Selling in order to relocate closer to work or other amenities”.
These pro-cyclical selling motives together made up 47.61% of total home selling in the 3rd quarter of 2018, according to the agents surveyed. This represents a decline from 49.34% in the previous quarter, and is noticeably down from a multi-year high of 61% in the 2nd quarter of 2014.
The gradual decline in this percentage of pro-cyclical reasons for selling homes is reflective of a multi-year economic growth stagnation since 2012, along with mild increase in interest rates from early-2014 to early-2016.
Selling in order to upgrade
A weak economy, and resultant weak consumer confidence results in many households being more cautious, or conservative, in their spending habits.
This can be seem in the housing market in the form of a far lower percentage of sellers selling in order to upgrade to better homes, compared with 2013/14.
In the 3rd quarter 2018 Estate Agent Survey, the estimated percentage of sellers selling in order to upgrade to a better home was 9.57%,a steady decline from 13% at the start of 2018.
This percentage is now far below the 20% estimate achieved in the final quarter of 2013, just before interest rates started to rise.
Selling in order to downscale due to life stage
Oldies downscaling have been the dominant force amongst the selling population in recent years, driven by strong growth in the 50+ age demographic. But a 24.53% of total selling estimate for this selling motive in the 3rd quarter 2018 survey is lower than the estimated high of 29% at the start of 2017.
After a noticeable decline in the 2nd quarter of 2017, off that 1st quarter 2017 high, this percentage has moved sideways.
This group of sellers may want to downscale, because they no longer need the “over-sized” home that they have, given their life stage, they are in theory not under too much financial pressure.
If the market weakens, as it has done recently, a portion of them could decide to wait for a better market period at some future stage before trying to sell, in order to realise the best capital gains possible.
Selling in order to relocate to another region
The impact of the economic slowdown has seen a noticeable decline in the level of selling in order to relocate to other parts of South Africa. The more affluent members of society are increasingly searching for lifestyle, and are often prepared to relocate for it.
However, the bulk probably still relocate mainly for economic/employment opportunity, and there are fewer opportunities being created when an economy is in recession.
Given that SA is currently in a recessionary environment, it is therefore not surprising to have seen a decline in this estimate, from 10.02% of total selling as at the 1st quarter of 2018 to 7.27% by the 3rd quarter 2018 survey.
Selling in order to relocate closer to work or other amenities
In tougher financial and economic times, the costly nature of property trading and less “job hopping” can cause a slowing in selling in order to relocate closer to places of employment or amenities (such as schools).
Indeed, the agent survey has pointed to such a broad slowing since 2014. In the 1st quarter of 2014, this motive for selling was estimated at 10% of total home selling. By the 3rd quarter of 2018 this estimate was 6.24%.
Noticeable rise in financial stress-related selling
Economic stagnation since 2012, and a gradual rise in interest rates from early-2014 to early-2016, has brought about a gradual rise in financial stress-related selling since around 2016.
The estimated percentage of sellers “selling in order to downscale due to financial pressure” was 16.3% in the 3rd quarter of 2018, up from 15% in the previous quarter and now noticeably higher than the 11% low as at the 3rd quarter of 2015.
However, this percentage does remain moderate compared to the 34% high reached in the 2nd quarter of 2009, at the end of the 2008/9 recession and just after previous interest rate hiking cycle peak.
Selling in order to emigrate creeps up
The survey points towards a gradual rise in the percentage of sellers selling in order to emigrate, from a low of 2% back in the final quarter of 2013 to 8.6% of total selling by the 3rd quarter of 2018.
This is not yet extreme when compared to the estimate reaching as much as 20% at a stage of 2008. This rising trend is a concern from an economic performance point of view, as emigration-related home selling in many instances represents highly skilled labour departing for foreign shores.