Luxury homes in doldrums
Property in the luxury home segment is the most sluggish at present, according to FNB's Estate Agent Survey for the second quarter of 2010, released on Tuesday.
"By this we mean that the luxury segment sees its demand in the doldrums relative to segments lower down the price ladder," home loans strategist John Loos said in a statement.
The average time on the market for the luxury segment was 19 weeks and four days, significantly up from the previous survey's 15 weeks and six days.
While demand was substantially weaker in the luxury segment, agents indicated less financial stress in the segment, which appeared something of a paradox.
"However, we suspect that, while all segments' income earning populations took a beating in the recession, it may well be that the loss of income in the high net worth group was more evenly distributed amongst income earners."
Loos said a higher portion of high net worth households were self-employed, while as one moved towards the lower income bands one might find a higher percentage were fixed salary employees.
"Self-employed people, with a client base, can often find themselves losing a part of their income but not all, whereas in the case of employees, those not losing their jobs can lose very little income while those losing their jobs lose it all."
On top of this, high income employees often had a higher portion of their total remuneration being flexible, and falling away in tough economic times, while being in the highly-skilled bracket protected them to a greater degree against job loss.
In addition, the wealthy received a greater portion of their income from investments, and many of these did not perform well in recessionary times.
"So, in a nutshell, it is possible that a greater portion of high net worth individuals lose some income, but a smaller percentage of them lose it all."
Hence, while there was less downscaling due to financial pressure in the luxury segment, reflecting a lower portion of households in dire straits (this curbed supply of property onto the luxury market), there was also a smaller percentage of households in this segment buying in order to upgrade (this curbed the demand side as well as supply).
While the luxury segment group nevertheless felt the financial pressure after the recession, it was just more evenly spread, enabling a greater percentage of households to cope, but perhaps a lower percentage to buy to upgrade.
Another possible explanation for weaker demand in the segment had been a rise in estimated emigration selling in the first half of 2010, while foreign buying appeared to decline significantly too, especially in the second quarter of the year.
"Should these factors have been a key contributor to weakness, due to poor sentiment, we would hope for the major sentiment boost caused by the hugely successful World Cup to normalise foreign buying and reduce emigration selling in the coming quarters' surveys," Loos said.
Article from: www.iafrica.com