Owners, buyers and estate agents may have fundamentally different ideas about what a property will fetch. By Bonny Fourie
Property values can be a contentious issue, particularly for homeowners who may have different perceptions of value to property professionals or even buyers. Sometimes this difference is due to the emotional connections they have to their homes.
At other times it is a misunderstanding about what factors influence a property’s value. Property trends and “fashions” also have a strong impact on what makes one property more valuable than another, so value – and selling price – can be dependent on the times.
This means factors of supply and demand are probably the most accurate gauge to determine a property’s worth, although property professionals note that not even this is 100% reliable as buyers themselves will place different values on different property elements.
A property’s location and features have a “big influence” on its value, says Adrian Goslett, regional director and chief executive of Re/Max of Southern Africa. The main principal that contributes to growth in property prices is, like all fields of trade, supply and demand.
“The higher the demand, the more the seller can charge. When a country’s economy has hit a dip, this will have a knock-on effect on consumers’ buying power, which means the demand for property will drop and sellers will have to reduce their prices in order to sell.”
Each suburb, however, has its own target market and price range, and this dictates the upper and lower limits of property values there, says Tony Clarke, managing director of the Rawson Property Group. But even within this price band, there are often certain roads or blocks that achieve higher than average prices.
“Typically, these pockets of more expensive properties will be positioned in the most convenient, picturesque or sought-after parts of the neighbourhood. They may have better views, better orientation, or better security than those nearby, and because they attract a more affluent buyer, they are often more modern and well-maintained.”
When determining value, says Craig Mott, regional sales manager for the Rawson Property Group in the Western Cape, a professional evaluator will look at both a home’s features as well as its condition. They will also compare the property to other prices in the area before coming to a decision.
“At the end of the day, the selling price comes down to what features the buyer is looking for and what they are prepared to pay.” For example, a swimming pool may be a negative for a busy professional but for a huge pro for a family with children.
Using the same example of a swimming pool, Charles Haigh, broker/owner of Re/Max Elite, says while the trend away from pools could see them not adding value to a home, it is usually just a case of finding a buyer who wants a pool.
“Buyers will pay for what emotionally excites them and this could, in most cases, be the wrong approach to determining the value of a home.” Haigh says there are definitely flavours of the month for what is considered valuable in a property or not valuable.
Rode and Associates’ Erwin Rode says: “Fashions come and go, and this also applies to the layout and finishes of a property. “Houses age like everything in the universe and, for this reason, a valuer cannot compare the price achieved by a 20-year old house with a fiveyear old home without making an adjustment.
“The same applies to swimming pools. I suspect that pools have become less popular in Cape Town since the drought. In fact, research I did in 1989 in Bellville showed that a pool did not add any value.” He says style does not appear to add or subtract from value.
“What is horrid to one potential buyer may be acceptable or even pleasing to another.”
Cell tower can negatively affect your sell
Cellphone masts detract from nearby properties’ values and aesthetics, says Charles Haigh of Re/ Max Elite. “They try to dress it up as a fir tree or with camouflage, but it’s easily spotted. Many buyers are unhappy as they believe it emits some kind of energy that will affect their health.”
In addition to the health concerns, Rawson’s Craig Mott says cellphone masts are an eyesore and make a property or area unattractive. “There have been properties located next to cell towers that sat on the market for years and even failed to sell at a very low price on auction due to the fact that it was next to a cell tower.”
Although Erwin Rode of Rode and Associates says there is no scientific evidence that proximity to a cellphone mast or high-voltage power line affects health, he admits that in the market, “it is the perception that counts”.
Location also plays a role in the value of a property which means, for example, that being situated close to an informal settlement detracts from a property’s value, Rode says. “However, when buying an existing home, this negative should be priced in already.”
Today, the biggest detractor from a property’s value is a negative location, agrees Haigh. “No matter what the property has to offer, if the position is less than desirable, the offers will be low in comparison to a similar home just across the street.
For example, the M5 means a difference in value between Rondebosch East and Rondebosch” Mott lists the biggest property value detractors as neglected or dilapidated buildings and gardens, outdated interiors, and unattractive exteriors. Others include proximity to informal settlements and taxi ranks, or a spot near an open, vandalised area.
“Informal settlements and the unrest that comes from them cause a slump in property sales and prices in the area. Busy roads that are dangerous and noisy can also drastically reduce a property’s price.”
Large stands can also create a perception of reduced security, says Mott. Water features, pools and high-maintenance gardens can also be negatives. Crime and poor maintenance in an area will also have an impact on prices because it will affect the demand for property in that area, says Seeff Property Group Samuel Seeff.
Buyers prefer areas with the X factor
Sea Views, a waterfront location, proximity to schools and amenities and ease of access for work and business are positive location aspects that add to a property’s value.
Increasingly, people want to live close to work and enjoy lifestyle benefits during their free time, says Seeff’s Samuel Seeff. Some suburbs also have the X factor and a better reputation so they attract higher prices.
“You can find instances where similar homes just streets apart can differ substantially in value, simply because they are in different suburbs. For this reason some properties will sell only in certain upper-end price bands in particular neighbourhoods.”
Seeff says the more people want to live in a suburb or area, the higher the demand. If the demand exceeds supply, prices will generally increase. Other contributors to a property’s value are accessibility to major freeways, being in areas where rush-hour peak commutes can be avoided, as well as being near to good schools, says Re/Max Elite’s Charles Haigh.
“Everything is about the rising cost of living and how the consumer can save time and money. This means low-maintenance homes with semi self-reliant energy and water resources tend to offer better value.”
When it comes to security, the more bells and whistles the better. The appeal of a home and what people are willing to pay for it is largely dependent on perception, says Re/Max’s Adrian Goslett. This even extends to street names.
“Streets and roads sound pretty ordinary, but avenues, drives and hills sound a little more high-brow. “Likewise, properties with a name rather than just a number tend to be viewed as special, and achieve better prices when marketed as such.”
Homes within an easy stroll of shops, restaurants, parks and public gardens are sought-after and valued, while the more self-sufficient your neighbourhood, the more people are willing to pay to live in it. Goslett says having a tech-friendly home is becoming more important so properties with features such as built-in charger points and thoughtful power outlet positioning can increase the desirability, and price, of a home.
“Home automation tools, particularly for security systems, are also popular, as are eco-friendly value-adds like solar heating or power generation and grey-water recycling systems.” The size and condition of a property generally affects its worth, says Seeff.
“You will find a four-bedroom house is valued higher than a two-bedroom house. “The number of bedrooms, functionality and layout, finishes, size of the land, entertainment area, swimming pool and garages will all influence the price a buyer is willing to pay.
“That said, there are price ceilings in most areas and property owners should always guard against spending too much on renovations and extensions which might not actually add value.”
Build value and must-haves
Adding a granny flat to a house on a large stand could be profitable as the letting of granny flats is growing in popularity. Local authorities also like this trend as it densifies the urban fabric, says Erwin Rode of Erwin and Associates.
Homeowners looking to add value to their properties by building granny flats, or making any additions to their home, should consider using energy efficient features that reduce a property’s reliance on the national electricity grid, says Rawson’s Craig Mott. Re/Max Elite’s Charles Haigh says property owners should also ensure there are sufficient bathrooms for homes that have more bedrooms than usual, and try not to have inter-leading rooms.
They should also note that:
◆A half-room is not a room, it’s a study.
◆Good kitchens and bathrooms still add huge value.
◆Access to the garden or braai area should be from the lounge for better flow.
◆Granny flats should be truly separate, with their own garden or courtyard and, if possible, parking.
Weak economy: Struggling sellers
As has been seen over the past 12 to 18 months in South Africa, a weak economy has a direct impact on the demand for property. The result is there are fewer buyers while property stock levels continue to rise, Seeff’s Samuel Seeff says.
“Buyers now have more stock to choose from and consequently will put in lower offers, resulting in pressure on asking prices.” The normal factors that drive houseprice inflation are economic growth, real growth in household income, and interest rates because they affect affordability, says Rode and Associates’ Erwin Rode.
However, at times, migration to a country or a city can also boost prices through the demand and supply mechanism. “Cape Town had been experiencing this phenomenon over the past few years as a result of semigration from the rest of the country, which has not evidently come to an end.”
There is potentially also a wild card that could eventually boost prices of the existing stock of houses. “The major cities are implementing policies that would force developers to include low-cost housing in their developments. This has the potential to disrupt the supply of new houses, which would eventually create a scarcity of middle-class housing, which would of course make housing more expensive.”
Interest rates can affect asset and house inflation in two ways, Rode says.
◆Firstly, when interest rates are ultralow in absolute terms through financial engineering – as many countries have experienced since the Great Crash in 2008 – affordability is greatly improved. This results in an artificial boom, even though the economy might have shown pedestrian growth
◆Secondly, during periods of demandpull inflation – as South Africa had during the second half of the 1970s and 1980s – interest rates are generally low relative to inflation, which makes financial gearing very profitable. This means the investor builds capital as the capital growth outpaces the cost of a mortgage. This can cause a buying frenzy which results in handsome capital profits for investors.