Property Talk

Author: Andreas Wassenaar
Date: 2014-05-09

The renovations market has recovered strongly over the past 6 months. Last week we focused on the reasons why home owners have been undertaking these home improvements and by doing this en masse have driven the Hardware, Paint and Glass Products category within the Stats SA retail sales measurement to be the highest growth category by far.

This week we will analyze the renovations market from a property owners' perspective and the five distinct categories that are measured by FNB in their estate agent survey. We all know that owning a property comes with a requirement to continuously maintain the property if we are to avoid wear and tear impacting on its value.

It is often this maintenance aspect that is the hidden cost of property ownership and when times are tough, it is one of the first aspects that becomes neglected. From 2004 the data presented in the survey suggests a long decline in the percentage of homeowners "investing in their properties with a view of adding value".

This is a measure of the highest level of home maintenance and improvement and actually reached an all-time low of 3% of total homeowners in the first half of 2013. This was a dramatic decline from the high of 43% recorded at the beginning of 2004. The good news is that this measurement has recovered recently to 10.5% as at the end of the first quarter of 2014.

The next level down refers to those homeowners reported to be "fully maintaining their property and making some improvements". This category has steadily improved from a low of 27% in 2008 to 44.5% by the first quarter of 2014. The top two categories therefore make up 55% of homeowners and this seems to be what is driving the retail sales of home improvement products.

The third category down measures those homeowners "not improving but still maintaining homes". This group has also grown to a much improved 35.5% and it would be expected that homeowners would migrate upwards from this category as our general economic environment improved. The fourth category refers to those homeowners "only attending the basic maintenance". This category should ideally be declining, as without any improvement a home will go backward over time. This category increased significantly from 6% in 2004 to 34% in the first quarter of 2009, and has since receded to the current 9.5%.

The fifth and last category are those who are "letting the home get run down". This is simply the worst-case scenario and as estate agents we witness this type of value destruction from time to time. Fortunately the size of this group is too small to be relevant.

When we do come across a home that is becoming run down, it creates a wonderful buying opportunity for the next person who will then typically take the home straight into the top category of investing in the property to add value. The impact of rising interest rates is the variable, which can quickly cause additional financial stress and could impact on how homeowners approach the maintenance of their properties.

For now it is those homeowners that regularly invest in their properties that are achieving the best prices in the market.

For further information and an interactive analysis of this article follow my blog: andreaswassenaar.blogspot.com.

Springclean

Enlarge View Link

Nissan T5ekton

Enlarge View Link