Property Talk

Author: Andreas Wassenaar
Date: 2016-04-15

As an indicator of the property market cycle, first time buyer activity is an interesting segment of the market to watch as it tends to track the cycle very closely. A decrease in first time buyer activity is an accurate indication that the property market is tightening. As of the first quarter of 2016, the published figures from the FNB national Estate Agent Survey indicates that an estimated 21% of total home buying is attributed to first time buyers. This is down from the prior quarters 26% and also down from the multi-year high of 28% reached in the 2nd quarter of 2014. The low-point of 12% in first time buyer activity was reached in 2008 in the midst of the last recession. We know that the first time buyer market is highly sensitive to movements in interest rates and the lending criteria of banks as they typically rely on very high loan to home value mortgages to get into the market. Changes in interest rates, lending criteria and affordability measurements therefore have a direct and immediate impact on the level of first time buyers in the market. They will typically decide to delay the decision to buy a property and continue to rent or live with family until the financial environment improves. FNB also measured what they call 1st time buyer panic, which refers to the concern that if they do not buy now they will never be able to afford a home in the future. Widespread buyer panic can cause a markets price levels to overshoot and lead to a bubble in the housing market. The measurement of buyer panic is down to an estimated 48% of first time buyers, from 51% in the prior quarter and down from the recent peak of 54% measured in the 3rd quarter of 2015.

An age group analysis of individual property buyers in the market was conducted by FNB. They segmented the deeds office data into property transactions by natural persons and came up with 24,016 such transactions per month on average for the three months up to December 2015. It is very interesting to note that this is approximately 39% of the boom time peak volumes recorded late in 2003. Of this group of natural person buyers, a monthly average of 10,579 were identified as being below the age of 40, of which a large proportion would be first time home buyers. These numbers have been reasonably consistent since 2010. The most active age group of buyers is the 30-39 age range, followed closely by the 40-49 age group. The younger 20-29 age group has been declining consistently from a peak of 20,81% in February 2002 to the current level of 13,63%. This leads us to believe that the high real property values are keeping the average buying age relatively high. As at February 2016 the average age of individual property buyers in South Africa is 44. The trend in this average age over the past 30 years has been upwards.

The general expectations for the next 12-24 months is that the slower economy, rising interest rates and a slowing residential property market will result in a decline in the level of first time buyers in the market. The smart money would therefore be searching for good rental stock that services the profile of a typical first time buyer as many of these people will be looking to rent rather than buy over the next two years. For the greater geographical area of Ballito which is growing at a consistently strong rate, an investment in rental properties servicing the R7,000 to R12,000 per month rental bracket makes a lot of sense right now.

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

Andreas Wassenaar

Principal - Seeff Dolphin Coast

Cell: 082 837 9094

andreasw@seeff.com

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