FNB Estate Agent Survey – Secondary Home Buying

Posted On Saturday, 03 February 2018 12:46 Published by
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In the 4th Quarter 2017 FNB Estate Agent Survey, the secondary home demand percentage was mildly lower than in the prior quarter, representing the 3rd successive quarter of decline.

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This was probably to be expected, given the weak levels of Business, Consumer and Investor Confidence late in the year, with the country experiencing weak economic growth, while also awaiting the outcome of December 2017’s ruling party elective conference. However, leading economic indicators, and indeed general sentiment, appear to be improving of late, suggesting that “non-essential” secondary home buying may improve slightly in 2018.

2ND PROPERTY BUYING WEAKENED AS 2017 PROGRESSED

In the tougher economic times of recent years, it was arguably to be expected that secondary home buying overall would be placed more “on the backburner” by many, given its non-essential nature, and indeed as 2017 progressed this appeared to increasingly have been the case.

Secondary home buying hasn’t “fallen through the floor”, but the FNB Estate Agent Survey has pointed in recent quarters’ estimates to some decline in such buying as a percentage of total home buying.

According to the survey, secondary residential property buying reached a multi-year high of 14.47% of total home buying back in the 1st quarter of 2017, the highest estimated percentage since the end of 2009. Since then, this estimate has declined for 3 consecutive quarters to reach 11.99% by the 4th quarter of 2017. These levels remain far below the pre-2008 boom time levels, which exceeded 20% at times.

For the record, the average estimated secondary home buying percentage for the entire year of 2017 was 12.9% of total home buying, and was actually slightly higher than 2016’s 12.4%. But it was a tale of 2 halves, and as 2017 progressed the secondary home buying market appeared to weaken.

BUY-TO-LET BUYING PERCENTAGE REMAINS IN SINGLE DIGITS, AND WEAKER IN THE 2ND HALF OF 2017.TOO

The main category of secondary home buying is the Buy-to-Let category. This category showed a very slight increase on the prior quarter’s 8.23% of total home buying, to 8.55% in the final quarter of 2017, but the 2nd half of 2017’s average of 8.4% remained lower than the 1st half of the year’s 9.7%.

This meant a continuation of single-digit buy-to-let buying estimates, which have been a feature for most of the time since 2010, and these are levels far below the above-25% estimates seen back in 2004 at the height of the housing boom.

AGENT NEAR TERM BUY-TO-LET ACTIVITY EXPECTATIONS WERE ON AVERAGE WEAKER IN 2017 COMPARED WITH 2016

As a follow up, we ask agents for their near term expectation of buy-to-let direction, i.e. “will buy-to-let home buying strengthen, weaken or remain the same in the next 3 months”?

We assign a 1 rating to an “increase” response, a 0 to an “unchanged” response, and a -1 to a “weaken” response, and then compile the aggregated FNB Buy-to-Let Market Confidence Indicator.
While this indicator remains in positive territory, indicating more agents still pointing to an expected increase than those expecting a decrease, the index levels during 2017 were on average lower than 2016 levels, 2017’s average index value being +0.54 compared to 2016’s average of +0.86

On a quarterly basis, the Index crept only marginally higher in the 4th quarter of 2017 to 0.54, from 0.53 in the prior quarter.

AGENTS PERCEIVED A SMALL RISE IN LEVEL OF INVESTMENT PROPERTIES BEING RESOLD IN 2017

In another survey question related to investment properties, we see agents surveyed pointing to recent quarters showing a slightly higher estimated level of investment properties being sold due to such properties having achieved lower than expected investment income, expressed as a percentage of total home selling.

In order to smooth this data series, we use a 4-quarter moving average calculations. From a lowly 2.75% of properties being resold due to lower than expected investment income, for the 4 quarters up to the 3rd quarter of 2016, this estimate has risen to 4.5% of total properties being sold for the 4 quarters up to the 4th quarter of 2017.

While this increase did suggest a possible mild deterioration in the popularity of owning investment properties in 2017 (or otherwise an increase in financial constraints amongst certain households), it remained at a moderate level compared to the 10.25% estimate for such sales back at a stage of 2010.

AGENTS PERCEIVED REDUCED PRICING POWER ON RESOLD INVESTMENT PROPERTIES IN 2017

It goes further. We ask agents to provide an idea of prices being obtained for investment properties being resold.

We did see a slight rise in the estimated percentage “sold below previous purchase price” during 2017, from 3.25% average for 2016 to 6.5% average for the entire 2017. We also saw an increase in the estimated percentage being “sold at purchase price” and not above, from 16.75% for 2016 to 22% for the entire 2017.

This translates into a rise in the percentage of homes being resold at either purchase price or below, from 20% in 2016 to 28.5% in 2017.

CONCLUSION

Although 2017 as a whole showed a very slightly higher average level of both secondary home buying, it was a year of two halves, and the 2nd half appeared weaker than the 1st half of the year. In the buy-to-let sub-segment of the secondary home market, too, the 2nd half of the year returned lower estimated levels of buying, while agent buy-to-let buying expectations were on average weaker than in 2016.
This second half weakness in the estimates is hardly surprising, given very weak sentiment amongst the Business community, consumers and investors alike in the second half of last year, much of it to do with economic weakness. In addition, Ratings agencies had been implementing widely-publicised ratings downgrades to “junk status” at a stage last year, and much publicity and uncertainty had been created in the run up to the ruling party’s December elective conference, all influencing sentiment last year.

One category of 2nd home buying that has declined to almost insignificant levels is the percentage of buyers “buying a home for use as a primary residence by a family member”. Whereas this category reached a multi-year high of 2.32% of total home buying back in the 3rd quarter of 2015, this percentage was significantly lower through 2017, averaging only 0.7% for the year.

The estimated holiday home buying percentage, however, has surprisingly not yet shown a noticeable decline. This category of buying was estimated at 3.65% of total home buying in the 4th quarter of 2017, only marginally lower than the 3.77% registered in the 1st quarter of last year, while the 2017 average of 3.3% was higher than the 2.5% average for 2016.

In short, 2017 as a whole was not perceived to be a worse year than 2016 in terms of secondary home buying, but it did weaken as the year progressed. However, given our expectation of stable interest rates in 2018, slightly improved economic growth compared with 2017, and seemingly significantly improved general sentiment at the start of this year (if the Rand’s significantly improved performance is anything to go by as a sentiment barometer), we would expect some increase in the estimated percentage of secondary (non-essential) home buying this year.

Finally, we estimate the level and change in ownership of secondary properties owned by individuals (“natural persons”) using deeds office data. Expressed as a percentage of total properties, ownership of secondary properties amounted to 16.26% of the total by December 2017. This is slightly down on a multi-year high of 16.29% reached in August 2017, while the year-on-year percentage change had slowed from 0.46% in July 2017 to 0.11% by December, thus also suggesting a slowing in secondary home demand growth in the 2nd half of 2017.

Last modified on Wednesday, 07 February 2018 15:15

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