Thursday, June 10, 2010

Will SA’s property market again ‘hold up’

Will SA’s property market again ‘hold up’ in the new round of Global financial wows?

Consider the market dynamics at work.

Fear & Confidence. These are big drivers in property; fear negatively impacts property, confidence positively. Market segments affected by fear will take a hit!

Cost of funding (interest rates) and ability to service a loan (employment and business profits). Cost of funding has been increasing and some top end buyers have recently suffered losses in their share portfolio, but jobs have remained strong.

Supply & Demand (number of active sellers v buyers). Demand exceeding supply is a critical driver of SA’s market, right now we have an undersupply of property yet plenty of buyers.

Alternative investments. Investors look at all their options, including shares and interstate property. SA’s rental market is strong with low vacancy rates – good news for SA property.

Following the Reserve Bank’s hold on interest rates, CommSec released their view:

CommSec believes that the economy will lift later in the year, meaning borrowers should factor in rate increases of up to half a percent. But in the current environment this appears more of an upside risk. As we have seen over the past two months, the environment can effectively turn on a dime. The optimism that was in abundance in mid April has now given way to fear and uncertainty with investment markets increasingly skittish

The $64 million question is how long will interest rate settings remain on hold? Even the Reserve Bank would be hard-pressed making sense of the volatile environment”. Click for the full report.

Since no one can be sure, what do we think?

My observation: The over $1m property market is impacted by any significant movements in the share market while the under $1m is impacted by job security. The market is volatile, and confidence rocky, yet there are too few quality properties available for the demand. This has driven strong sales. Job security ensures confidence in the affordable properties and lack of property has kept this market solid, but first home buyers are few.

The big issue right now is a lack of alignment between seller expectations & buyer capabilities!”

Properties priced to the market are flying out the door, while those priced by ill informed agents or emotional vendors are simply not selling. The blow out of time on market is simply the process of time for sellers to adjust their expectations. Sales are happening months into campaigns at prices well below those offered within the first few weeks. The old real estate saying ‘the first offer is your best offer’ is not always true, but is reality often enough.

What does all this mean? Sellers need to get their expectations and marketing right first up. Cheap selling strategies will create lost opportunity. Bargain hunters will struggle too; once a property price hits market alignment we are seeing multiple offers, yet banks are limiting buyer’s capabilities.

Toops Tip: BUYERS, the price you pay will be long forgotten when you’re enjoying the home you LOVE while that bargain may NEVER feel like home. SELLERS, don’t take risks with your sale process, do your homework, and remember that old real estate saying!

Anthony Toop, Managing Director.
© Toop Real Estate Group

1 comment:

Paul said...

Toops Tip: BUYERS, the price you pay will be long forgotten when you’re enjoying the home you LOVE while that bargain may NEVER feel like home. That would be a great tip if property fell 30% over next couple years! Keep in mind that is possible that equity markets could again tank if the public debt crisis escalates, the problem being this time around that governments are running out of 'tools' to help, so the stock market might really tank next time! which would no doubt lead to a falling property market in Australia. If you are bearish about shares in the current environment, then I reckon you should also be bearish about property as well!