In the FNB Estate Agent Survey, one of the questions asked to respondents is to provide an indication as to the key reasons for selling properties. 8 categories of reasons for selling primary residential properties are provided. They are “Down scaling due to financial pressure”, “Down scaling with Life Stage”, “Emigrating”, “Relocating to Elsewhere in SA”, “Upgrading”, “Moving for Safety and Security Reasons”, “Change in Family Structure (Death, Divorce, etc)”, and “Moving to be Closer to Amenities”.
Emigration rate creeps up gradually
The “Selling in order to emigrate” motive for selling is one that FNB has been watching closely in recent years, given signs of rising “social tensions”, along with recent years of economic growth stagnation in South Africa.
And indeed, the survey respondents have been pointing towards a gradual rise in the percentage of sellers selling in order to emigrate, from a low of 2% back in the final quarter of 2013 to 6.2% of total selling by the 1st quarter of 2017.
This is not extreme when compared to the estimate reaching as much as 20% at a stage of 2008. However, the rising trend is a concern from an economic performance point of view, as emigration-related home selling in many instances represents highly skilled labour departing for foreign shores.
Selling in order to relocate to another geographical region remains significant
The impact of the economic slowdown doesn’t appear to have affected the level of selling in order to relocate to other parts of South Africa.
The more affluent members of society are increasingly searching for lifestyle, and are often prepared to relocate for it.
In certain cases, FNB believes that this “semigration” has become the affordable alternative to emigration for some people, given that extreme property values in many popular emigration destinations have made emigration a very costly business.
At 9% of total selling in the 1st quarter 2017 survey, this estimate is slightly down from the prior quarter’s 10% estimate, but remains significantly higher than the 6% lows of the 2008/9 recession period.
FNB believes that there is a strong Western Cape “flavor” in these “semigration” estimates. The survey shows that for the 2 summer 2016/17 quarters, the City of Cape Town had the lowest percentage of sellers selling in order to relocate to another part of the country. Simultaneously, Nelson Mandela Bay had the highest estimate of 17.7%, followed by Joburg with 10%, and in the past our deeds data estimates have pointed to a strong Western Cape drive by many of the “semigrating” inhabitants from the other regions.
The survey does not point to a noticeable rise in financial stress-related selling …
Despite economic weakness and a mild rise in interest rates from early-2014 to early-2016, FNB has seen little more than a minor increase in financial stress-related selling.
The estimated percentage of sellers “selling in order to downscale due to financial pressure” was 13% in the 1st quarter of 2017, only mildly up from the 11% low back in the 3rd quarter of 2015. This percentage remains moderate compared to the 34% high reached in the 2nd quarter of 2009, shortly after the last recession and previous interest rate hiking cycle peak.
In fact, the survey respondents even suggest that in the past 3 quarters or so, those sellers selling to downscale due to financial pressure may have become slightly more confident about their financial situation, as a group.
FNB says this because the agents believe that within the category of sellers selling in order to downscale due to financial pressure, the estimated percentage of those intending to “rent down” as opposed to “buy down” has receded, from 53% in the 2nd quarter of 2016 to only 40% by the 1st quarter of 2017.
The rental option is often the cheaper and lower cash flow risk option, so a rise in the percentage intending to “buy down” points to some increase in confidence amongst this group of financially pressured sellers. The noticeable increase in the percentage intending to “buy down” came following the end of interest rate hiking early last year.
… But significantly slower upgrade-related selling continues to point to a more conservative and perhaps financially-constrained consumer these days
A weak economy, and resultant weak consumer confidence, should cause a shift by many households towards being more cautious, or conservative, in their spending habits.
It should not be surprising, therefore, to see them trimming the pace of spending on “non-essentials” in the housing market either.
Indeed, this is what has happened. So, although FNB hasn’t seen a noticeable increase in financial stress-related home selling in order to downscale, they do see a far lower percentage selling in order to upgrade to better homes, compared with 2013/14.
In the 1st quarter 2017 Estate Agent Survey, the estimated percentage of sellers selling in order to upgrade to a better homes was 12%. This remains well-below the 20% estimate achieved in the final quarter of 2013, just before interest rates started to rise.
But the ‘Oldies’ and the their down scaling due to ‘Life Stage’ continues to be by far the single biggest driver of home selling
The strong growth in the 50+ age cohort’s numbers is reflected in the ongoing strength in selling “in order to downscale due to life stage”. This form of down scaling refers to those sellers who desire a smaller home, usually either because they are getting older or because their offspring have left home.
This category of sellers remains by far the biggest one, and in the 1st quarter 2017 survey it was estimated that 29% of sellers were selling for this reason. This is the continuation of the multi-year rising trend in this motive for selling, all the way from levels below 15% back in 2008 when this survey question started.
This 29% estimate well up on the 2008/9 recession low of around 12%.
This high percentage continues to suggest that this group of older home owners still sees the market as a good seller’s market, and are making use of the window of opportunity to offload larger properties.
This group is, theoretically, not in financial difficulty, but would often wish to “offload” properties that are perhaps too large and costly for their altered requirements. Their currently large percentage is believed in part to be reflective of the various cost escalations associated with property. These include:
- Security costs in a high crime environment;
- High maintenance costs
- Municipal rates and tariff increases that consistently exceed inflation and household income growth
These cost increases come at a time when Economic and Household Sector Income growth is mediocre at best, and the effective income tax rate is steadily rising. Given that one’s house is for most of us the largest single driver of expenses, including security, rates and tariffs, but also a myriad of insurance, maintenance and running costs, down scaling to a smaller home can dramatically improve one’s financial position.
The broad picture emanating from the FNB Home Selling Estate Agent Survey remains one of financial constraints and caution, in an environment of economic weakness and uncertainty.
FNB believes that the very high level of selling in order to downscale due to life stage is not only driven by strong growth in the size of the older middle and upper income population numbers, but also due to a sizeable group of the ageing population wanting to “offload” larger homes, that are increasingly costly to operate, in favour of smaller and less costly homes.
The second sign of greater caution these days is the relatively low level of selling in order to upgrade homes compared with 2013/2014. A greater portion of home owners thus seem intent on “staying put” for the time being.
However, there is no strong sign of rising financial “stress”, with little increase in sellers selling in order to downscale due to financial pressure. And of this group, an increased portion are believed to be taking the “buy down” route as opposed to the perhaps less risky “rent down” route, possibly even a sign of increased confidence amongst this financially “pressured” group.
But a key concern is the gradual uptick in emigration-related home selling. Although at 6.2% of total selling this percentage is not extreme, there has been a gradual rising trend from the 2% low of late-2013, and such an increase is never positive given that it probably represents a rise in the departure rate of skilled members of the labour force.