Use science, not sentiment

The feeding frenzy which has dominated the property market for the past two to three years is definitely over and the market has returned to more normal levels. House price growth is hovering around the 10.0 percent per annum mark — and if that reflects the downturn in the market, then we’ll take it!

Was the feast, which helped fuel growth of 30 percent and more, justified? Yes; there are times when, if the market runs, then joining the sprint makes sense. However, people often keep dancing too long after the party is over.

Similarly, at the other end of the scale there is the danger of being overly cautious. Pessimism is just as infectious as optimism; perhaps more so. There is no question that our market is extremely influenced by sentiment in its many guises. We tend towards uncertainty. We worry about the future of the country — although we have enjoyed ten years of sound economic performance — almost as much as we do about the rugby.

Market movers

Presently, as far as the property market is concerned, the Dinner Party Index is down. That’s sentiment for you! It moves markets, whether property, stocks and shares, or the international oil price. There are, of course, practical considerations. The increases in interest rates this year — with the likelihood of yet another in December — have caused alarm, what with many people recalling the frightening days in the late nineties of mortgage rates lurking around 25 percent.

Since June and August, residential property activity has slowed on a national average basis, as shown by the various indices published by the financial institutions. Market patterns too are changing — again on a countrywide average — such as fewer asking prices being achieved and houses taking longer to sell.

Inflation is creeping towards the Reserve Bank’s upper target level of 6.0 percent with oil, food and electricity prices being the main culprits. But an average market statistic often distorts the true picture.

Mortgage advance growth

There are pockets of activity which are powering ahead at record levels. Consumer confidence is still at an all time high, despite the Reserve Bank’s efforts to dampen household spending. The growth in mortgage advances is the highest on record: 30.2 percent year-on-year in July, according to the Bank. Admittedly, many households are using relatively cheap mortgages to finance debt other than housing.

Furthermore, not all players in the market are experiencing trading doldrums. In the year to end-July the Pam Golding Properties Group has achieved sales of R6 926-billion — 49 percent more than over the same period last year. Sales through the company-owned branch network were 50 percent ahead of the same period last year, and its franchise division sales were 46 percent ahead.

South African residential property sales, according to one financial institution, are “still flying” compared with international markets, with property developers expecting a boom ahead of the 2010 build-up.

But how best to make sense of it all? Approaches to today’s property market must be level-headed and practical. Both buyers and sellers must take good advice which will enable them to make an informed decision around comparative values, the state of the current market and future projections. All these parameters, incidentally, contributed to our decision to launch Intellectual Property last year, to provide our customers and potential customers with sound financial, legal and economic advice on which to base decisions in the property marketplace.

So how does it work? The buyer and seller should be provided with a comparative market analysis based on properties sold in the neighbourhood. The seller must be given an evaluation, not a valuation. All this will help the seller to arrive at the right price — very important in today’s market.

Competition is healthy

Selling property is a process, and price counselling from an experienced and responsible agent is the key. There is always great debate around whether sellers should grant agents a “sole” mandate. Generally speaking, a sole mandate secures you a better marketing plan, a concentrated effort, wider coverage, and a much greater level of commitment. Competition is healthy, but it needs to be between buyers and not between estate agents.

From the buyer’s perspective, he or she must explore the market thoroughly, setting aside time to visit properties, while gleaning as much market-related information as possible. Some buyers spend as much as six months doing their homework before buying. And, most importantly, the buyer must build a relationship with a reputable estate agent from a reputable company. Science, not sentiment, is the key to success in the property market.

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