Advice and Opinion

Gap between new and existing home prices

Commenting on the price gap between new and existing properties, Michael Bauer, managing director of the estate agency IHPC, has said that while there has always been a gap between the prices of new and existing properties, it is something to note that it reached an all time high of around 37,1% (as reported in a November 2013 ABSA Home Loans quarterly review of the residential property market).

“I would see this as an advantage for buyers – in buying an existing property over buying a new one,” he said. “There is a bigger scope to negotiate, particularly if you’re a good client of the bank, and if you’re a cash buyer or are in very good standing financially it puts you in a better position to choose from the various properties for sale. Advantages are often that existing properties may be bigger in size (building and land size), and therefore are cheaper on a selling price per m². Depending on why the seller has put his property on the market, if they are distressed sellers or need to relocate due to work transfers, there are higher chances of more competitive offers being accepted.”

With new properties, there isn’t the negotiating platform that existing properties have, and whichever price the developer has pitched the properties at is the price the buyer will have to pay. With the land and construction prices going up steadily and very little land available for development, the chances of new property prices coming down are very slim, he said. Land values are the main factor in determining the overall cost of developing and these in the Cape at present are very high.

Costs of construction can be managed but land values will hold and steadily increase. Most developers will want to buy land that can be developed straight away and will not be likely to buy agricultural land to wait for rezoning, he said.

While reports from one bank will only be from their loan books, the figures are usually indicative of the overall market and can be used as a trustworthy guideline on what is happening.

“In our experience the demand is still there for lower priced properties and housing in this price bracket is in short supply,” he said.

The one thing to take into account is that the interest rates will not stay low forever, and it is advisable to buy while the rate is low and try to fix the rate for five years, which are usually the most difficult financial times for a home buyer, said Bauer.

“There is one certainty, and that is that house prices will increase and so will interest rates, the only question is when,” he said.

Monthly repayments on bonds now are on about 30% lower than in 2008, it makes sense to fix the rate rather than risk an increase in payments over the next few years.

“While there is a gap for negotiation, buyers should exploit this. This could be a chance to buy a property by making what seems to be a ridiculous offer, but might be accepted because of sellers wanting to sell their properties quickly.”

Leave a Comment