Property Talk

How much money do you spend on maintaining or upgrading your home? If you ask a sample of ten people you may get ten different answers. However when you ask thousands of people as an indication of the overall market and demand in the renovations market, the results start to provide useful insight into the direction the residential market is moving in. In mid July, FNB published its Estate Agent Survey dealing with the Residential Maintenance and Upgrades. The report provides for five categories of home upgrades. The overall improvement trend that was evident from 2013 through 2015 seems to have been reversed. The highest measurement for home improvement is called "Value Adding Home Upgrades". A high of 26% in the 3rd quarter of 2015 has now declined to 22.5% in the 2nd quarter of 2016. Given our almost recessionary economic conditions it is not surprising that people on the whole are becoming more conservative in their level of upgrade spend. The next level or category measured was defined as the percentage of homeowners "fully maintaining their property and making some improvements". This broad category has declined from 42,5% recorded over the last two quarters of 2015 to 39% in the 2nd quarter of 2016. The next category are home owners defined as "not improving but still fully maintaining their homes". Here we have seen a decline from the high of 37.5% recorded in the 3rd quarter of 2014 to 21% in the 2nd quarter of 2016. What this translates into is the rise in the category of homeowners "attending to basic maintenance only". This level means that the home will go backward over time. This estimate was 7,5% for the 2 quarters up to an including the 4th quarter of 2015, and has risen to 17% by the 2nd quarter of 2016. These measurements of spend by homeowners to levels of home maintenance and improvement indicate that households have run into financial limits causing them to adopt a more conservative spending approach, even though full blown financial stress is not yet specifically indicated. FNB's Home Investment Confidence Indicator showed a steady increase over the 2013 to 2015 period, reaching a peak in the 3rd quarter of 2015. Since then we have seen a steady decline in this measurement.

It is interesting to look at a measure of household spend on home improvements and we can use the Reserve Bank's Retail Sales on Hardware, Paint and Glass Products as an excellent proxy. This category of real retail sales grew by a mere 0,5% for the three months to April 2016. This represents a slowdown in growth from a 9,6% high in April 2015. For a retailer such as Mica or Build-It, their sales would reflect this demand and it would be time to think in terms of aggressive promotions and value added options for their customers if market share is to be maintained. Home improvement specialists would also at this stage be experiencing this tapering off in demand for renovations.

The vast majority of people undertaking home improvements do it for their own use (69%). A far lesser amount do it because they cannot afford to buy elsewhere (12%). Interestingly those doing it for speculative reasons remain relatively high at 18%.

For those that have been considering a home improvement the timing may be perfect as retailers can be expected to offer special deals on product and the contractors can be expected to get more aggressive on pricing as margins are squeezed.

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