The South African property market enjoyed a bumper 2015, but in even the most desirable of purchasing regions, the Mother City, it’s not all going the seller’s way anymore and realtors are advising a revision of expectations of both pricing and the length of time it could take to sell a house.
The Cape Town market this year is slowly starting to react to the general economic slump and is moving away from the highs of last year, when a national year-on-year sales volume increase of 2% to 3%, coupled with a nominal price increase of around 6% between 2012 and 2015 saw record sales being achieved again for the first time since 2007.
Favourable interest rates and banks’ leniency in lending requirements also spurred the market’s buoyancy, with sellers in many areas smiling all the way to the bank with a substantial return on investment.
Lew Geffen, Chairman of Lew Geffen Sotheby’s International Realty, says: “This was especially true in the Western Cape where skyrocketing demand buoyed the market even further and sellers in Cape Town’s most sought-after suburbs were often able to set – and achieve – their asking price”.
“However, whilst demand in the Cape hasn’t diminished, the economic downturn which began to make itself felt in the last quarter of 2015 is now impacting even the most impervious markets as consumers come under increasing pressure in the face of rising interest rates and cost-of-living increases.”
For the first time in three to four years, agents in highly sought-after areas like Cape Town’s Southern Suburbs are not reporting an across-the-board shortage of sale stock and buyers now have a greater choice of properties.
“While this can partly be attributed to the fact that some consumers are forced to downscale in these tougher times,” says Geffen, “the increase in the number of available homes for sale is also due to the fact that many sellers are holding out for their asking prices and houses are therefore on the market for longer”.
“And while many homes in the Southern Suburbs achieved asking price last year when a dearth of stock had buyers scrambling, it’s a different scenario this year and sellers need to be realistic.”
Dave Burger and Cecile Leck, Area Specialists for Lew Geffen Sotheby’s International Realty in Kenilworth and Harfield Village say: “There has been a notable increase in the time that properties have remained on the market this year, especially homes priced in the middle and upper market segments priced above R2.5 million”.
“Unfortunately the problem is being exacerbated by the fact that there seems to be very little price counselling from agents, with successive sole mandates often continuing to market a property at the original, inflated price”.
“And, while in some instances this may be done simply to secure the sales mandate, it is also an indication that many sellers are still setting their own prices without consulting experienced agents who are able to advise sellers about current market trends in their areas and what prices can realistically be achieved.”
Jill Lloyd, Area Specialist for Lew Geffen Sotheby’s International Realty in Claremont and Lynfrae, has also seen a drop in sales and an increase in available stock, as well as noted an emergent trend which is impacting the supply and demand ratio.
“There is a very interesting trend towards minimization where less is more with a growing number of people opting to downsize rather than pay for space they don’t need in an effort to simplify their lives”.
“By doing so, they are able to eliminate all the junk and unnecessary clutter that they have accumulated over the years as well as the maintenance demands of large homes and gardens.”
Lloyd is also finding that buyers are now in a position to negotiate and often do, with some even making offers that on the face of it appear to be ridiculously low, which riles sellers who then dig in their heels.
She warns that this can backfire with far-reaching consequences unless sellers have the luxury of time and funds and do not require a sale to pay for a new home where an offer to purchase has already been submitted.
“It is especially during tougher economic times that it is critical for sellers to ensure that they appoint an experienced agent who has a comprehensive understanding of the current market in their area”.
“Home owners are often understandably enticed by the offer of a reduced commission and promises of unrealistic sale prices by inexperienced agents but this almost always translates directly to the level of service and expertise they can expect and in a buyer’s market this can be a costly mistake”.
“Unseasoned agents often have no real idea yet of what property is worth and how to accurately value a home so often take on property at an unrealistically high price, which the seller is eventually forced to sell at a much lower price than could have been achieved.”
Eileen O’Sullivan, Area Specialist for Lew Geffen Sotheby’s International Realty in Constantia Hills, Constantia Lower and Constantia Rural, says that a comparison of sales records between the first half of 2016 and the same period last year reveals that the markets in these areas remained active and demand driven.
“In fact, we saw a steady increase in both price and demand until well into the second quarter of 2016, and it is only very recently that we have noticed a slight decrease in enquiries”.
According to Nina Smith, Area Specialist for Lew Geffen Sotheby’s International Realty in Newlands, this market has experienced a marginal decline this year, with a light drop in sales and average selling price.
“From January to June in 2015, there were 131 homes on the market of which 36 were sold within that period at an average sale price of R6.14m, however, from January to June this year there were 204 available properties and only 34 sales at a lower average price of R5.72m”.
Smith adds that there has also been a noticeable increase in the length of time properties remain on the market.
“Between January and June last year 36 homes were sold in Newlands with 17 snapped up in under two months while same period this year saw only 13 of the 34 sales selling as quickly.”
While the market isn’t likely to improve this year, the agents all remain optimistic as the steady demand for homes in Cape Town, buoyed by the continued influx of upcountry buyers is also unlikely to change in the near future which means that realistically priced homes will always sell, albeit a little slower and for a tad less than could be expected last year.