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Expensive property prices likely to fall in 2021 and cheapies could get more dear

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We could witness interesting trends in property prices this year where expensive property prices could fall significantly due to low demand while cheaper property could become more pricey as it will be more sought after.

Sounds confusing or not making sense?

By expensive, I mean properties worth over R2.5-million. This is for both houses and townhouse type properties.

In my opinion this market has been oversold and over blown for many years.

Just looking at general incomes in Bloemfontein will show that the number of people who can afford these super-expensive properties is very limited, far fewer than the number of properties being put onto the market at these inflated prices.

If we take a R3-million property, that would mean a bond payment of around R25 000 per month; plus say, R2 000 for rates and taxes and maybe another R2 000 for insurance and some maintenance. That makes it a total of R29 000 per month.

It doesn’t matter whether you pay cash or not because if you do you should have earned similar amounts to have accumulated the cash to buy with.

Bonds are given based on net income after deducting normal living expenses, tax, car payments, food, school fees, etc.

Traditionally, you could afford to pay a bond of 35 percent of your income or in this case an income in the region of R83 000 per month.

Now I don’t know about you, but even today a family income of R83 000 per month is high by anyone’s standards.

With the lockdown, we are told that incomes have dropped and that many people have lost their jobs.

Personally, I believe that less than 10 percent of all those that are employed in Bloemfontein are receiving salaries or incomes at that level or above.

What do you think?

And despite this, the prices of more than half the properties coming onto the market are selling for R2.5-million or more.

I would suggest that many people in this market already own a home and are cautious of moving within town at the moment.

Only those people who are moving from another centre are likely to be buyers for this price range currently.

Thus this market has lots of sellers, but relatively few buyers. 

On the other hand the affordable market has remained very strong throughout the year.

The main reason is that with the current low interest rates the cost of buying your own property is very similar to the cost of renting.

Renting a R5 000 per month property could well turn out to be the same cost as buying a R500 000 house.

You will pay about R3 600 per month towards your bond, R1 000 for the levy and about R400 for the rates and taxes.

As tenants are seriously looking at buying instead of renting, demand for affordable houses could significantly increase.

As a result of this, I see prices in this bracket trending upwards.

Willow Glen bachelor flats are very popular and with good rentals being obtained their previous selling price of around R260 000 in March 2020 can be said to have risen closer to R300 000 today.

On top of this, it is important to remember that some 40 000 students have not been going to varsity.

When they come back, starting next month, any vacancy will be taken up and there will be pressure on rentals for affordable units.

If the demand for rentals increases, it could mean a possible increase in prices at the same time.

  • Mike Spencer is the founder and owner of Platinum Global. He is also a professional associated property valuer and consultant with work across the country as well as Eastern Europe and Australia.

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Property

Brain drain threatens property industry

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SECTOR NOT SPARED . . . South Africa is losing potential property buyers through emigration

South Africa is faced with a potentially damaging brain involving both newly qualified and experienced professionals across different disciplines.

I will not limit this topic to professionals in the property industry only because whatever happens in one sector has a direct impact on all matters property.

I will explain briefly: if a teacher, medical doctor, artisan or engineer decide to seek greener pastures abroad, it means the property sector has lost some potential customers who were either going to rent at some point or buy their own property.

Of course, some might decide to invest back home, but that possibility is not always guaranteed.

We have also seen professionals in the property industry such as architects, estate agents and quantity surveyors leaving the country, thereby directly impacting on the work done in the sector.

Practically, every time the economy gets tough it is natural for skilled professionals to look for more active areas to live and work in.

This might mean moving to the Cape from the interior because it is perceived that the government of these areas is better as are the opportunities for these professionals.

Artificial barriers to employment for these professionals can result in them seeing opportunities overseas that are not available to them here.

This is what is happening now, and has been happening for some time.

Highly skilled professionals are moving overseas in the search of better opportunities.

Typical of this would be my son who has an accounting degree and another one in internal auditing.

He is a determined and hard-working professional.

Notwithstanding that he can be seen as being at the top of his profession, he found himself being bypassed by less qualified and experienced people here.

The result was that he was required to do the job for his boss.

He eventually went overseas and has gained far higher and well-paid positions because of his abilities – at a total loss to the South African economy.

This is happening in every sphere of professionalism here, especially among the younger family generation.

Political interference, such as state capture, is also resulting in highly qualified black professionals seeing their future overseas.

America and Europe as well as Australia and New Zealand welcome these well-trained and ambitious people with open arms.

They are seen as hard working and innovative people.

It is amazing how many of these South Africans rise to the top of their professions.

Just think how much Elon Musk would have contributed working in South Africa today.

How can this emigration be stopped?

The answer is simple: just make it attractive for these people to stay.

Get rid of the Broad-Based Black Economic Empowerment and allow promotion on merit.

How can you select doctors on colour and not on their academic results?

Taking a person with C grades against one with A grades just does not make sense.

We need to do away with biased allocation of tenders – get rid of racial undertones and appoint people on their ability to do the job.

A huge problem is going to occur is when the current older generation of professionals retire.

Few new property valuers are coming through because it is a profession that requires a high level of understanding of building processes and detailed comparisons of past data.

Schooling is simply not orientated towards creating administrators and professionals and South Africa is going to see a dearth of professionals over the next few years.

  • Mike Spencer is the founder and owner of Platinum Global. He is also a professional associated property valuer and consultant with work across the country as well as Eastern Europe and Australia.

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Property

Thoroughly inspect the property before buying

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I recently wrote about the new law making it compulsory for sellers to make a declaration about the condition of the property they are putting on the market so that the buyer is fully aware of its condition including faults that may need to be fixed.

I am told there is a Gauteng family that bought a house at an auction only to find it occupied by “illegal tenants” who did not want to move out.

I have been asked discuss how this can be avoided or addressed.

My advice is simple: sellers should declare what they know about the property and they should draw up a contract that makes it clear that the buyer is buying a property that he/she has seen and done the necessary investigations on their own.

The new law regarding seller declarations has only just come into force and it’s not surprising some people could be facing challenges when buying property and don’t know how the new law could assist them.

To begin with, the new law means that the seller is required to declare any faults or condition of the building that is being sold or those that he should reasonably be aware of.

Remember sellers seldom have the skills necessary to know whether or not there were, for example, problems with the foundations unless these had caused problems in the past.

In my opinion, this is yet another piece of legislation that gives more rights to purchasers than they should have.

While I am happy that sellers should indicate any serious problems that they were aware of or should have been aware of, it should also be a requirement that a buyer should understand that they are not buying a new property and should take reasonable care to know what they are buying.

This includes the physical state of the building and anything else that could be going on at the property.

It has always been the case that a seller could never deliberately hide problems – for example, cover over serious dampness with a bookcase or not let a buyer know about roof leaks.

But, in my opinion, it is simply making it more difficult to contract freely.

On the other hand, buyers should carefully look at properties that they are considering buying.

Nobody can expect them to climb into roof spaces and again buyers cannot be considered experts in buildings.

Normally serious problems would be visible from the inside or outside of a property.

Both sellers and buyers should look carefully to see that water flows properly and that there are no serious problems with the building on the market.

They should also remember that not every small defect is a problem.

I have lived in my house for over 45 years.

Is it perfect?

No.

But those small problems – little cracks or a solar system that trips if there is especially heavy rain are not serious problems.

Bottom line: one is buying a second-hand product and not a new one.

It is therefore important to thoroughly inspect it and be sure about its availability before entering into or concluding any purchase agreement.

  • Mike Spencer is the founder and owner of Platinum Global. He is also a professional associated property valuer and consultant with work across the country as well as Eastern Europe and Australia.

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Property

No rush back to the office

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LOW DEMAND . . . There are large numbers of vacant and under-utilised offices across the city

While there are a few owners who want staff back in the office in order to start having face-to-face meetings, online meetings have become the norm.

It is just another indication that the demand for office space is not likely to grow soon, particularly in Bloemfontein.

We can see in the market that there are large numbers of vacant and under-utilised offices across the city.

The demand is simply not there.

What can be done with these offices to create an income?

Firstly, we should remember that many of them are simply converted houses, so a possible solution is to return them to their original use as a single home or to split them into a number of smaller apartments.

The market for such units is good now and it is a realistic option, provided that bathroom facilities are there or can be easily put in.

Secondly, the same can be said for small offices, especially in Westdene as most house-sized units are too large for smaller businesses.

Something needs to be done because landlords cannot continue to suffer from these properties standing vacant.

And if you have tried looking for a nice place to stay, it seems there are very few quality residential places to let.

Even if you are prepared to pay over the odds to rent something neater, newer, or nearer to work, you are going to be disappointed.

Apart from Langenhoven Park and a few areas in the north, there has been very little development taking place around the city.

Even fewer of these areas have allowed for the development of flats or apartments, so the new supply is very limited compared to the current demand.

Any middle-of-the-road potential tenant will find it near impossible to find an affordable luxury apartment to rent – at any price.

It is quite surprising because the cost of land is high and putting three times the units on a site should be a preferred option for developers and reduces this cost per unit by two thirds.

Servicing an area of flats is going to be less than servicing an area of single-storey units.

With relatively large flat sites compared to individual stands the services are simpler, the roads are far fewer and cheaper to construct in total.

It is disappointing that developers have not taken these new dynamics on board and are still developing small sites that cannot accommodate more than 25 units while the demand for large multi-unit developments remains high.

  • Mike Spencer is the founder and owner of Platinum Global. He is also a professional associated property valuer and consultant with work across the country as well as Eastern Europe and Australia.

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