Drop your sights if you want to downscale

If you’re planning to downscale to a smaller home, it will have to be at least two sizes smaller now to make the move worthwhile.

That’s the word from Jan Davel, MD of the RealNet property group, who notes that First National Bank’s latest research shows that one in four of all home sellers is trying to downscale for financial reasons.

“However, Absa’s latest figures indicate just how tricky it is becoming for many middle-income people to benefit from such a move. They reveal that the average nominal price of a small home was 28,3% up year-on-year in August to R837 100, while the average price of a medium-size home was just 5,4% up to R961 700.

“And using these values, the costs of selling a medium-size home and buying a small one would amount to around R90 000 – so in most cases there would probably be very little monetary compensation in such a sale for all the upheaval of moving – and more importantly, hardly any cash available for a deposit on the smaller home.”

On the other hand, he says, Absa’s figures show that the difference between the average price of a large home and the average price of a small home (two steps down) now stands at around R622 000. “The costs of sale and repurchase in this case would amount to around R120 000, so there should be plenty left to justify the sale and put down a significant deposit on the new home.”

Indeed, says Davel, the steady increase in property operating costs over the past two years has driven an increasing trend of downscaling from large homes to small ones, and this has in turn supported much stronger price growth in lower-priced suburbs than in other areas.

“And that is why downscaling is much more difficult now for the owners of medium-sized homes – and certainly one of the reasons we are seeing a really significant increase in demand and a growing shortage of homes in the under-R500 000 price category.

“This price category is also where the attention of most first-time buyers is concentrated, and in fact the latest data from Lightstone shows that 38% of all sales recorded in the Deeds office over the past 12 months were priced below R400 000, up from 27% in 2004. So we believe this is where developers and the financial institutions should be focusing their attention right now.”

Issued by RealNet

Article by: www.realnet.co.za