Property price hype shocker

Many residential properties are advertised at about 30% more than they are worth – with sellers not getting these overinflated asking prices.
This was revealed by Barak Geffen, local operator of real-estate franchisor Sotheby’s International Realty, who told Moneyweb this week that in the currently-crowded market estate agents are promising sellers far more than they can hope to realise.

Though national property advertising supplements are packed with houses carrying price tags of R1-m or more and even reaching more than R40-m in exclusive areas of Cape Town, sellers are generally no longer getting their asking prices.

Estate agents hungry for sole mandates are promising sellers they can fetch more than houses are actually worth, with the result that “about two-thirds of everything is overpriced”, said Geffen.

In addition, houses are not selling as quickly as they could, with about 70% of properties now being sold by the second agent receiving a sole mandate.

“The margins are not as big as people think and the barriers to entry are so low. You study for about two months and can then sell the world’s second-most-expensive asset after companies. Merchant bankers, on the other hand, study for years,” he said.

Geffen pointed out that the property boom has attracted so many new estate agents that there are far more agents than houses up-for-sale in some areas.

For example, the leafy enclave of Hout Bay, Cape Town, which has about 8 000 homes, is serviced by more than 130 agents.

In November, about 14 homes were sold in Hout Bay, leaving all these agents “feeding off” just over a dozen properties.

A regular survey of selling prices shows that properties are changing hands for about 30% less than asking prices in the higher price brackets, with properly-priced houses being snapped up quickly by buyers who have been on the hunt for a while, Geffen said.

In some areas, prices are being inflated by even more than 30%. In Camps Bay, for example, where properties can go on the market for more than R10-m, the average property is selling for about R3,5-m.

A Nettleton Road, Clifton, house advertised for R10-m eventually sold for about R6,5-m, Geffen said.

There will be a correction in the market, he predicted, however this will first take the form of asking prices better matching final selling prices.

One area where investors could get burnt, he said, could be in the buy-to-let arena in new developments where hundreds of new units are coming on stream.

Developers could end up having cash flow problems, with financially painful consequences for those who have bought in an early phase, he said.

Investors could lose their deposits or they could find themselves owning a property that loses its value because it is situated in the middle of an incomplete development, Geffen said.

Article by: By: Jackie Cameron - Moneyweb