Increased demand doesn't translate into higher property prices

Private Property South Africa
Lea Jacobs

The stock shortages in many parts of SA are allowing property prices to grow steadily. This does not however mean that sellers should overprice their homes.

Although most assume that access to finance is still the biggest challenge facing today's buyers, surprisingly a recent survey conducted by a local real estate company has found that agency owners believe it's easier to find a bank willing to finance a bond than actually finding a realistically priced home.

Many areas across the country are facing genuine stock shortages. It's a cry often heard by those trying to buy a home in the Western Cape - there simply aren't enough homes available in certain areas. However, those polled in the survey which was conducted in 140 of Harcourts offices shows a more disturbing trend.

Even though some areas still have a stock surplus as a result of the 2008/09 financial crisis, this poll revealed that the majority of our business owners believe that the biggest challenge currently facing agents – and home buyers – is undoubtedly a shortage of well-priced homes for sale

says group CEO Richard Gray.

“What is more, some 37% of survey respondents expect this lack of stock to be their major difficulty over the next 12 months, compared to only 15% who believe their chief constraint in the next year will be their buyers being unable to qualify for home loans.”

Correctly pricing a home has always been important, however, as things currently stand it has become vital to get the pricing right. While any seller may market his home for any price, this doesn't mean that buyers are going to be willing to fork out extra for the privilege of owning the home. Perhaps more importantly banks have become extremely reluctant to finance an overpriced property. In instances where a bank can't find value, it will generally only offer finance on what it believes the property to be worth. This isn't a problem if the buyer is willing and able to put down a larger deposit, but it can be hugely problematic for those who are looking for a 100 percent loan or is restricted as to how much deposit he can afford to pay.

Believe it or not - buyers have become a lot more savvy and are generally aware when a home is overpriced. Everyone wants to make a profit and sellers just like buyers want to get the most out of a deal when it comes time to sell. Paying more than a home is worth will come back to bite in the short and medium turn.

In theory property prices are linked to demand. Add the low interest rate into the mix and property sales in this country should be pumping. However Gray notes that the majority of those polled do not expect the market to behave like a traditional 'sellers’ market’ in which prices rise rapidly. "This is what usually happens when interest rates are low and demand exceeds supply as it does now, but in this instance, buyers are extremely value conscious and would still rather lose out on a deal rather than risk paying too much."

In fact, says Gray, the majority of the Harcourts business owners (39%) feel that the market is currently in a state of neutrality or balance and will stay that way for the next few months barring any major economic shocks.

“In addition, 32% said they think buyers still actually have the upper hand - which means that prospective sellers still need to set their asking prices very carefully and in consultation with a qualified real estate professional who is able to provide them with the very latest market information and analysis.”


Found this content useful?

Get the best of Private Property's latest news and advice delivered straight to your inbox each week

Related Articles

Flat repo rate vital for stability and economic and property recovery
The decision by the Monetary Policy Committee of the SARB to keep the interest rate at the current level of 7% is a vital boost for stability.
Could this be driving Cape Town’s phenomenal house price growth?
The Western Cape continues to reflect pockets of strength in the national housing market, with high levels of house price growth. But what is the reason behind the city’s exceptional performance?
South African property trends Q4 2017
Recently released data from RE/MAX reveals the state of the property market in the last 3 months of 2017.