Advice and Opinion

Maximising returns and managing expectations in the super luxury market

Clifton Home Auction
The super luxury market continues to attract wealthy investors seeking a more secure investment option, although sellers may find that niche properties like this luxurious state-of-the-art multi-level Clifton home may sell faster by auction. This Nettleton Road property goes under the hammer on November 24.

The global super luxury property market has greater immunity to standard economic fluctuations than most residential property and South Africa is no different, but the one rule that applies whether you’re selling a studio in Illovo or a mansion in Clifton is that the property needs to be priced correctly for its market in order to sell.

That’s according to Lew Geffen, Chairman of Lew Geffen Sotheby’s International Realty, who says sellers’ expectations in this market can be out of synch with valuations for the area and property type – often because they’ve invested so much of themselves in creating what is their perfect home.

“But what is perfect for one person isn’t necessarily perfect for everyone, and when one starts looking at the market above R50 million it’s a good idea to take guidance and advice from the experts before you put up the ‘For Sale’ sign.”

Geffen says while the market – especially in the Western Cape – is still strong in the luxury bracket, the length of time properties spend on the market has risen.

“There is appetite for luxury properties, especially in areas like the Atlantic Seaboard, Constantia and Bishopscourt, but it has slowed since the 2014 peak and property owners need to manage and adjust their expectations”.

“Holding out for an unrealistic price could prove costly in the long run if the home spends an inordinate amount of time for sale, and it becomes stale. It’s therefore essential to appoint a real estate agency that not only has a proven track record in this market but also an extensive database with global reach”.

“Cape Town’s super luxury market tends to attract more international buyers with the purchasing power of Pounds, Dollars or Euros and these buyers love the city because in property terms it offers far more bang for buck than most other comparable cities around the world”.

Geffen says that realistic expectations and real estate agency selection are especially vital when the bulk of a seller’s capital is tied up in the property and debtors are insisting on settlement, one might need to try another sales strategy such as the auction platform for a faster way to the market and subsequent sale.

That said, whilst many people perceive auction to be a desperate measure or the depressing consequence of foreclosure, this is not always the case, especially in the luxury market where unique properties have a specific target market.

Joff van Reenen, Director and Lead Auctioneer for The High street Auction Company says residential auctions aren’t necessarily the way to go for every property.

“Residential property auctions are very specific for a very important reason as not every home is ‘auctionable’ but properties that are architecturally unique or of historic value tend to work exceedingly well on the auction platform”.

“Auctions are perfect for those types of properties that could sit on the market for a long time while the owner looks for an ideal ‘fit’ in a prospective buyer. Niche residential auctions are effectively selling on steroids, because they are accelerated marketing campaigns marketed extensively to the correct buyer database and the people who end up participating are serious, pre-qualified bidders.”

Van Reenen says if processed correctly, auctions are an incredibly efficient way of selling real estate assets as it provides fast liquidity for owners.

“However, as with real estate agencies, you need an established auction company with an extensive database to reach the widest possible target audience”.

“The professional status and experience of the auctioneer is also of paramount importance and he must be a member of the South African institute of Auctioneers as well as the EAAB, and hold a valid FFC.”

Van Reenen adds that auctions can also be relied upon to achieve realistic sale prices as they will always correct the market, especially in the super luxury bracket where seller expectations are often slightly high.

“This is due to the fact that auctions are a public event and when 200 to 300 people attend a 25-lot auction it always reveals true market value – and the market never lies!”

Weighing up the costs of auction vs realtors

Auctions:

– Residential property auctions are ideally suitable for historic, niche or unique properties that might not sell as easily in the standard real estate market.
– Sellers are responsible for marketing costs, the amount to be negotiated with the auctioneer.
– Buyers pay the auctioneer’s commission.
– The pool of buyers is slightly restricted to those who demonstrate financial liquidity at the time of purchase rather than those who are looking for a 100% bond. According to High Street Auctioneers Director Joff van Reenen bidders in property auctions are usually required to pay a deposit in order to qualify to bid and the amount can be anything from R50 000 to R1 million, depending on the value of the asset being auctioned. Unsuccessful bidders’ deposits are returned after the auction.
– Sellers are responsible for the costs associated with all the legally required Certificates of Compliance.
– Buyers and sellers are responsible for all the standard legal costs associated with a normal transfer of ownership.

Realtors:

– Real estate agencies have the know-how, database and marketing reach to sell any type of home, from the most compact studio apartment to a sprawling Constantia homestead.
– Sellers pay the agency commission.
– Realtors often have a wide pool of buyers, as potential investors can opt for higher bond applications from banks.
– Sellers are responsible for the costs associated with all the legally required Certificates of Compliance.
– Buyers and sellers are responsible for all the standard legal costs associated with a normal transfer of ownership.