No World Cup benefit for luxury home owners

Luxury home owners did not benefit from increased demand during the World Cup, an auctioneer said on Tuesday.

"When it was announced that South Africa was getting the Fifa World Cup, many people thought that the one sector of the property market which would most benefit from an influx of foreign tourists and global exposure, would be the luxury end of the residential market," Auction Alliance CEO Rael Levitt said in a statement.

However, the auction group's third quarter results had shown weak buyer demand in the luxury sector as well as a decline in prices from the first quarter of 2010.

"Luxury houses now seem to be faring particularly poorly with certain areas affected worse than others."

He said the affordable housing market was the strongest sector of the real estate market and the top end was the weakest.

"I suppose in a country with a severe housing shortage it makes sense that entry level houses have the greatest demand and on a socio-political and macro-economic level that is a healthy sign for the country and ultimately for the real estate market."

Levitt said there has been a growing trend of delinquencies in the luxury market and many more forced sales, with financial exposures of over R10 million.

"Significant interest rate drops from 2009, which stimulated the residential market last year, now seem to be wearing thin and the luxury market has come off the boil."

He said a strong rand was also causing downward pressure on foreign demand and sales over the World Cup to foreigners were at best dismal.

"In fact the Fifa World Cup seems to have distracted the market from sales to soccer."

Levitt said certain luxury suburbs such as Camps Bay in Cape Town had a considerable over supply of homes in the R5 million to R10 million range and buyers were able to negotiate deals.

"This situation also applies to areas like Ballito, Sandton and others where luxury house development and broking was once an instantaneous wealth creation mechanism."

Levitt said the luxury market would probably depreciate for the rest of the year.

However, he said there was a possibility of a post Fifa World Cup effect on luxury suburbs at the end of the year, when tourists flocked to South Africa after having been exposed to the country during the soccer tournament.

"The ultra luxury market in the Western Cape's Atlantic Seaboard suburbs has not been spared from the weakening luxury market, which enjoyed seven years of rapid price growth," Levitt said.

Auction Alliance had sold several houses for banks and liquidators at the R20 million level and prices had been low.

"As an example we sold five homes in Bantry Bay for discounts of up to 30 percent on prices at the 2007 peak and we still expect to see more luxury distressed sales as the residential market recovery lags the general economy by up to two years."

Levitt said at one stage wealthy buyers from other provinces flocked to the Cape and other luxury coastal areas and this had fuelled prices.

This form of "semigration" also seemed to have slowed as a result of the economic downturn.

Levitt said banks had also played a role in dampening demand.

"They are no longer eager to finance luxury house purchases and certainly not at the percentage loan to value levels previously offered."

He said buyers could find good deals at the luxury end of the market now.

"Buyers who have access to funding and want to upscale can find great value right now in luxury houses." - Sapa

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