Analysing PE property
Nelson Mandela Bay Metro activity tracks the national trend higher in the third quarter…

The Third Quarter pointed to a significant jump in activity levels in the region, after a mediocre improvement since the low point reached in the third quarter a year ago. This suggests that the region is beginning to feel the positive impact of the series of interest rate cuts that took place in the first half of 2009.

The Property Barometer is a survey of a sample of estate agents in the major cities of the country regarding their personal experience of market conditions.

The main Barometer question relates to the level of demand activity, and agents are asked to rate the level of demand that they experience on a scale of one to 10.

After an initial rise from 4.18 in the third quarter a year ago to 4.92 in the second quarter of 2009, agents estimated activity to have jumped more significantly to 5.82 in the third quarter.

The third quarter survey was undertaken in mid-August, after the bulk of the SARB’s 2009 interest rate cuts to date.

PE more optimistic

The jump in the Mandela Bay activity rating means that the agents surveyed from the region, as in the other major coastal regions, are more upbeat about activity than their Gauteng counterparts, although all regions have seen an improvement.

The three major coastal metros, namely eThekwini (5.86), Mandela Bay (5.82), and Cape Town (5.82) are now more upbeat in their estimates of activity compared with Joburg’s 5.47 and Tshwane’s 5.76.

Greater seller realism setting in

On a two quarter moving average basis, the estimated percentage of properties sold at below asking price showed a further decline from 79 percent in the second quarter to 75 percent in the third quarter, while the average time of a property on the market prior to being sold declined only marginally from 16 weeks and six days in the second quarter to 16 weeks and three days in the third. These two indicators, when read together, point towards more realistic pricing by sellers, most notably the general decline in those properties sold at below asking price since the 94 percent of the third quarter of 2003.

The greater realism may not only be due to sellers setting prices lower, but also due to the market catching up to price levels, therefore making previously unrealistic price levels now a little more realistic in a stronger market.

Selling in order to downscale due to financial pressure remained high although fairly stable, slightly higher at 26 percent of total selling in the third quarter from 25 percent in the second quarter of 2009 (on a two quarter moving average basis).

Simultaneously, selling in order to upgrade showed a marginal improvement from four percent to six percent from quarter to quarter, which remains low in comparison to levels near to 16 percent as at the beginning of 2008.

Thus, although the demand side of the market has strengthened, it is clear that the household sector in Port Elizabeth remains under pressure for the time being.

As a percentage of total selling, emigration selling in Port Elizabeth showed a surge during 2008, similar to the trend in other metros, but never reached as high a level as the likes of the Gauteng metros or eThekwini. After a peak of 14 percent in the fourth quarter of 2008, there has been a broad decline in emigration selling’s significance to only seven percent of total selling by the third quarter of this year, according to the estate agents surveyed.

Teetering on the brink of price deflation

On a year-on-year basis, the Nelson Mandela Bay Metro clung on to slight house price inflation of 0.5 percent. However, on a quarter-on-quarter basis the rate returned to deflation of -0.1 percent, indicating that as at the second quarter the momentum in prices had not yet turned upward.

Interpretation/Conclusion

Although not expected to be a strong recovery, the third quarter Barometer points to a significantly stronger situation in the Nelson Mandela Bay residential market, following a period in which demand activity battled to improve. The third quarter jump in demand was significant, while another key indicator, that being the percentage of sellers achieving their asking price, has also improved significantly.

Deeds data runs a bit behind, but while slight price deflation on month-on-month basis was still apparent in the second quarter, it is believed that this will turn for the better in the coming quarters’ data, once demand catches up with the apparent oversupply of recent times.

To date, the demand improvement is largely the result of interest rate cuts, and banks’ response to better market conditions by relaxing lending criteria has reinforced the trend. In the near term, though, the economy is expected to provide more support for the market as we emerge from recession.

In 2008, the Mandela Bay real economic growth rate was believed to have slumped from 4.5 percent in 2007 to 2.1 percent, exerting huge pressure on real disposable income growth, which slowed from 5.3 percent in 2007 to 2.3 percent last year. In all likelihood Mandela Bay has been in a recession during the first half of 2009, but the signs are that both the global economy and our own national economy are beginning to strengthen, good news for what can be a very cyclical Mandela Bay economy and property market.

Article from: www.iafrica.com