Why now is probably not a good time to buy an investment property in SA

New FNB data for the third quarter of 2017 shows that secondary home demand in South Africa has declined for a second successive quarter, while there was a quarterly decline in the estimated percentage of investment (buy-to-let) home buying; an increase in the offloading of investment properties; and the pricing power of sellers of these homes declined.

“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,” said FNB property strategist John Loos. “Indeed, this continues to be the case.”

The analyst said that while secondary home buying doesn’t appear to have fallen through the floor, the FNB Estate Agent Survey does point to recent quarters’ estimates showing some decline in such buying as a percentage of total home buying.

According to the FNB Estate Agent Survey, secondary residential property buying reached a multi-year high of 14.47% of total home buying beck in the first quarter of 2017, the highest estimated percentage since the end of 2009.

Since then, this estimate has declined 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, Loos said.

FNB said that the main category of secondary home buying is the buy-to-let category. This category showed a decline in the estimated percentage in the third quarter 2017 FNB Estate Agent 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.

“The quarter-to-quarter estimates are somewhat volatile, so this does not yet confirm a declining trend. However, it does mean a continuation of single-digit buy-to-let buying estimates, which have been a feature for most of the time since 2010, and these are levels far below the above-25% estimates seen back in 2004 at the height of the housing boom,” Loos said.

In another survey question related to investment properties, FNB said agents surveyed pointed 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.

To smooth this data series, FNB said it uses four-quarter moving average calculations. From a lowly 2.75% of properties being resold due to lower than expected investment income, for the four quarters up to the third quarter of 2016, this estimate has risen to 4.5% of total properties being sold for the four quarters up to the third quarter of 2017.

“This increase suggests a possible deterioration in the popularity of owning investment properties, but remains at a moderate level compared to the 10.25% estimate for such sales back at a stage of 2010,” Loos said.

FNB said it also noted a slight rise in the estimated percentage “sold below previous purchase price”, and have for some time seen a marked rise in the estimated percentage being “sold at purchase price” and not above.

This translates into a rise in the percentage of homes being resold at either purchase price or below, from a multi-year low of 15.25% of total investment property sales for the four quarters up to the second quarter of 2016, to 29.5% for the four quarters up to the third quarter of 2017, the lender said.

But buy-to-let buying is the largest driver of overall secondary home buying by far, and this remains anchored in single digit percentage territory, FNB said.

“However, emerging weakness in the investment (buy-to-let) market is not yet seen so much in a declining percentage of buy-to-let buyers.

“Rather, it is seen more in the increase in the percentage of investment property sellers not achieving a sales price above what they originally bought the home for, as well as in a mild increase in the estimated percentage of investment property owners putting the properties back on the market due to those properties not achieving satisfactory returns, the group said.


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Why now is probably not a good time to buy an investment property in SA