TEAM RAMOS BLOG | PROPERTY SHOUT OUT!!!
THE SQUEEZE ON PRICING IS ON! 5 September 2018 Roger Ramos
Current listing time “on market” has increased significantly since 2016. Back then properties reliably sold between 14 and 90 days. Whereas, now we find that unless the property is priced below the current average listing price, buyer enquiry activity is very low, and offers are scarce.
It is now not unusual for properties priced at the average listing price or above, remaining on the market for period significantly longer that 90 days – unless the properties marketing price is adjusted to below the current average.
We also find a widening of gap of asking vs actual offer price, with gaps in offers being up to 20%. Current experience, based on buyer enquiry activity and actual offers received, indicates that current average list prices are approximately 5 to 10% above what the buyer market finds value.
Accurate pricing from the outset is critical, but as we are finding a lag in deeds office data, and a longer time period for sales to materialise, we find that an relatively aggressive re-pricing on market prices has to take place, before the buyer market finds interest and appetite to make offers.
It is important to actively manage the pricing – we find a low level of buyer enquiries, and active marketing and regular price adjustments eventually find a level where buyers enquire and submit offers. Without active price and marketing management, buyer enquires and feet through the property are minimal and offers non-existent or scarce.
It is not unusual now to see regular pricing adjustments at all price levels on a daily basis. The period 2014 to mid 2017 showed very few price reductions, whereas 2018, we at least 4 to 5 price reductions per day in the Helderberg. We also find the “time on market” time period growing ever larger.
We find that in some areas, for example Cape Town, asking prices on new developments have increased by 50% or more between 2016 and 2018. In the Helderberg, we find many areas, particularly security estates where price growth from 2016 to 2018 ranged above 40% in this time period. And in here lies a major problem…
BankservAfrica’s latest take-home pay index revealed that South African salaries increased by 2.2% year on year as at June 2018. Source: Businesstech.co.za (September 2018)
However, inflation grew by 4.6% effectively resulting in a year on year salary decline 2.4%. Another analysis indicated that when comparing 2018 real vs adjusted for-inflation salaries, people are in fact 10.6% poorer than they were in 2008. Source: Businesstech.co.za (September 2018)
With the continued much higher than inflation increase in fuel, electricity, food and water supply costs, and a much much lower corresponding increase in salaries, the buyers purchasing power is effectively being eroded…and combined with the property price inflation over the past 2 years in the Western Cape, the income increase just has not kept up with the property price increases, and currently the level of price resistance is extremely high.
The majority of home sellers (96%) have to drop their asking price in order to sell the property. That's according to a second quarter FNB Estate Agent Survey. John Loos, household and property sector strategist at FNB says the survey evidence suggests that asking prices on average have become less realistic in recent years. Source: Fin24.co.za (September 2018)
Loos says the trend also shows an increase in the magnitude of estimated asking price drop required to make a sale. The estimated magnitude of asking price drop needed to make a sale became slightly larger - from -8.2% in the first quarter of 2018 to -9.2% in the second quarter.
In some areas, resultant sales have demonstrated property price deflation. Source: Fin24.co.za (September 2018)
It certainly is a time for being cautious and conservative with pricing. Income increase trends are certainly not keeping up with the high cost of living, and consumers are increasingly being forced to downscale and reduce costs.
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