Monday, October 22

Purchase while pessimism rules

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South Africa's dismal economic performance is nothing to celebrate, but for buyers with cash on hand, the situation could present good opportunities.

In addition, figures released by StatsSA last week reveal that the construction and real estate sectors are among the best performing, says Berry Everitt, chief executive of the Chas Everitt International Property Group.

He says, for this reason, buyers should “ignore the current negative sentiment” about the country’s economic future and purchase more property “as soon as they can”. “The real estate market is currently described as a ‘buyers’ market’ because sales are slower overall and prices are static or only growing very slowly in most areas.

Buying is what investors should be doing now, not sitting on the fence waiting to see what everyone else is going to do.” Everitt says in property, following the crowd is a “bad idea” because by the time general sentiment turns positive, prices will usually already be moving upwards quite rapidly. Much of the opportunity to maximise gains will then be lost.

That turnaround, he believes, is only a few months away. “Property investors need to keep in mind that South Africa still has a significant structural shortage of square metres to accommodate its growing population and that there is high and rising demand for decent rental housing close to city centres and other employment hubs because of the rising cost and inconvenience of travelling to work.”

Quoting Warren Buffet, Seeff’s Andreas Wassenaar says: “The most common cause of low prices is pessimism – sometimes pervasive, sometimes specific to a company or industry. We want to do business in such an environment, not because we like pessimism but because we like the prices it produces. It’s optimism that is the enemy of the rational buyer.” Wassenaar says South Africa is currently at the “low ebb of a market characterised by pervasive pessimism”.

“The smart money is currently taking advantage of this by buying aggressively.” During a recession, unemployment increases and spending power declines, and in the world of real estate, Adrian Goslett, regional director and chief executive officer of Re/Max of Southern Africa, says this translates into a buyers’ market where the supply of properties outweighs the demand from buyers.

“Unable to afford the costs of a mortgage, more properties enter the market, with some falling claim to bank repossessions and distressed property sales. There are also fewer buyers on the market during this time as many simply will not be able to afford the costs of purchasing property. While this does not spell good news for sellers, buyers who have planned for the possible recession will be able to purchase property at much lower prices.”

FNB’s August Property Barometer shows that 14.7% of properties on the market by the second quarter of this year are being sold due to financial pressure. This is from a multi-year low of 11% in the third quarter of 2014. “Understandably, this motive should increase in significance in a ‘downturn’ and vice versa in better economic and property times,” says FNB’s John Loos.

Buyers need to know how to leverage their negotiating power in the current market to get
the best deal. Picture: Supplied

Do research: Snap up a good deal

Savvy buyers looking to snap up good property deals need to do their homework, says Rhys Dyer, chief executive of bond originator ooba. They also need to know how to leverage their negotiating power. Know what you can afford Buyers should have a clear idea of what financing is available to them.

Using a bond affordability tool and engaging with a bond originator will give buyers a realistic indication of their price ceiling. Understand the seller’s situation Insight into the homeowner’s motivation for selling can be invaluable when negotiating the final price, says Dyer. “If sellers are in a hurry to move, it is more likely they will accept a lower offer.” 

Find out how long a property has been on the market The longer a house is on the market, the more likely it is overpriced for current market conditions.

“Over-pricing is one of the worst things a seller can do,” says Dyer. “But it also presents opportunities for astute buyers who can expect price cuts of up to 15% from desperate sellers.”

Research comparable homes It is important to have a good understanding of what similar homes in an area are selling for. Think beyond price If a seller won’t budge on price, he or she may be negotiable on other issues, Dyer says.

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