Insights from the (SAPTG) research team reveals changing trends in property buying that property professionals and investors should consider when formulating their respective marketing and buying strategies.
Marketing insights company, Knowledge Factory, has released a report based on data derived from SAPTG that highlights two of the most noteworthy current trends in the South African property market. The financial downturn has changed buying patterns significantly. Drawing on property sales data from national figures in South Africa for the past 5 years, the report reveals the rise of cash sales as a percentage of total property sales. Is this just due to the rise in repossessions or are there other factors?
Additionally the report shows the steady convergence of full title and sectional title prices. This in spite of the fact that the number of sectional title units sold has suffered a greater year-on-year decline than full title units. So what are the underlying reasons?
Knowledge Factory’s, Dieter Deppisch, Property Data Research National Manager will be discussing these trends in detail over the next few days. Due to the length and detail of the report, it has been broken down into discussion points which we will publish daily - there are three in all.
TREND 1 - CASH IS KING
The first trend that stands out when reviewing the data is that ‘cash sales’ — defined as transactions where no bond was registered at the time of transfer are increasing as a percentage of total sales year-on-year. From a high in the 2003/2004 period, cash sales steadily declined as a percentage of total sales over the next five years. However, this trend started reversing in the period 2006/2007 and cash sales of full title and sectional title properties rose to 33 per cent or 1 in 3 sales during 2008/2009. 35% of all full title properties were cash and 30% compared to 30% of all sectional titles. In addition, a considerable 35% of the total Rand value of all transactions accounted for, were cash sales.
Dieter Deppisch, who heads property data research at SAPTG, highlights the introduction of the National Creditors Act (NCA) in June 2007 as a catalyst for the decrease in the ratio of bonded sales to cash sales. “As expected, the introduction of the NCA and subsequent tighter lending criteria has driven cash sales upward as a percentage of all sales,” Deppisch confirms. “Many people who could obtain financial assistance for their property purchases in the past are now excluded. According to the largest bond originator in South Africa, only 1 out of 2 (50.5%) potential buyers applying for bonds are currently being approved.”
Other reasons for the rise in cash sales as a percentage are, predictably, related to the current financial crisis. “With repossessions on the rise the fortunate few with have sufficient liquidity are picking up bargains at auctions,” Deppisch observes. “Property is also an increasingly attractive asset class for investors disappointed by recent poor returns in the equity market and other investment classes. Property, while no get-rich-quick-scheme, is being favoured as a ‘safe haven’ that will yield healthy returns in the long term.”
Deppisch also believes the trend is being magnified by the growing numbers of estate agents that are responding to the market downturn, tight lending criteria and high bond decline-ratio, by actively targeting cash buyers.
This is Part One of a Three Part series of articles on this topic. Catch Part Two tommorrow on Privateproperty.co.za