Recovery! Kind of...

A mild recovery in residential property demand from late last year is continuing, shows the FNB Residential Property Barometer survey released on Wednesday.

But don't get too excited at this stage, warned FNB Home Loans strategist John Loos.

The second quarter results of the survey showed a 'stuttering' in the recent trend in demand activity levels.

Estate agents surveyed reported an almost insignificant decline in demand activity from 4.8 in the previous quarter to 4.79 on a scale of 1 to 10.

Loos said seasonal factors might be largely responsible for this.

If one compared the second quarter's activity level with the corresponding quarter a year ago, it had risen by 8.4 percent, the first year-on-year rise since the first quarter of 2007.

This suggested, seasonal factors excluded, that the mild recovery in residential demand was continuing.

Loos warned that a 4.79 level on a scale of 1 to 10 remained 'on the weak side'.

Though estate agents surveyed believed interest rate cuts had done some good, they still thought the ongoing strict banks' lending criteria were a major constraint on demand.

"In addition, estate agents believe that financial stress selling may have worsened in the second quarter, helping to sustain an oversupply of property on the market," said Loos.

Asked why sellers were selling property, the survey group estimated that about 34 percent of them were doing so to downgrade due to financial pressure.

"The situation appears particularly bad on the lower income end, where this estimated percentage rises to 41 percent of total sellers," Loos said.

The ongoing imbalance between demand and supply would continue for some time, translating into some further house price deflation in the second half of the year.

"Indeed, data from the Property Barometer appears to support this view, with estate agents surveyed estimating that of all investment properties returned to the market, 36 percent had been sold for lower than their previous purchase price."

This percentage was sharply up from the 13 percent of the previous quarter, Loos said.

Two further Barometer results supported the notion of an oversupply on the market, as well as pointing to continued unrealistic expectations on the part of sellers.

The average time a property spent on the market prior to sale increased to a new record high of 21 weeks and one day.

An unchanged 86 percent of sellers were required to drop their asking price in order to make the sale, the survey found.

On the positive note, Loos said emigration selling looked to be contributing far less to the oversupply of property on the market in recent times, compared to last year.

"In the second quarter, an estimated eight percent of sellers were selling in order to emigrate, which is significantly down from the 20 percent peak reached in the third quarter of last year."

Loos said this was anticipated, as emigration surges that typically followed major political changes, such as those that took place in Polokwane during 2007, usually subsided over time.

"In addition, job prospects in popular emigration destinations look less rosy at present," he said.


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