Grahamstown's property market is acknowledged to favour buyers, and local estate agents agree that sellers must be more realistic even though local prices haven’t fallen as much as the national average.
Grahamstown's property market is acknowledged to favour buyers, and local estate agents agree that sellers must be more realistic even though local prices haven’t fallen as much as the national average.
“We are extremely fortunate in Grahamstown, as we have tended to buck the system, with high demands for property in the past which have clearly exceeded supply,” said principal of Pam Golding Properties Daphne Timm.
South Africa’s boom years from 2000-2006, in which house prices rose by an average of 20% annually, are a thing of the past. By 2008, the property market had come to a grinding halt following the global financial crisis.
The 2010 World Cup brought a short-lived surge but the property market slowed again due to rising inflation and lower economic growth. “The economy, interest rates, and supply and demand depict whether the market becomes a buyer or seller’s market,” explained Harcourts owner Jean-Pierre Pienaar.
“Grahamstown is unique in that we have a more captured supply and demand market.” “We have entered into a buyer’s market in Grahamstown, which does not happen very often,” Timm said. “It means Grahamstown sellers need to reconsider their marketing prices.”
Timm appears to imply that asking prices might be higher than they should be; however, she believes that if sellers are realistic they will still sell their properties, and they will still have had a good return. Pienaar agreed that Grahamstown is currently a buyer’s market.
Absa predicted that average house prices nationally will have risen by 2–3% by the end of the year, but inflation means house prices are falling in real terms.
According to Timm, though, the situation is more positive for Grahamstown sellers. “We have generally had higher year-on-year returns than this [2-3%],” she said, adding she couldn't recall ever selling a property for less than its original purchase price.
Pienaar said Grahamstown is currently experiencing a “price correction”, which means property was over-priced and is levelling out. But, according to Chris Armitage of Stewart Armitage Estates, Grahamstown and Kenton are among the top five towns in South Africa where prices are holding.
The average nominal value of homes in each of the three middle-segment categories in July 2012 was: small homes (80m²-141m²): R692 000, medium-sized homes (141m²-220 m²): R1 019 900, large homes (221m²-400m²): R1 475 500.
This shows price deflation in both nominal and real terms in the middle segment, meaning that housing has become more affordable. But few buyers are able to take advantage of this due to factors such as income trends, high debt levels, risk profiles (as reflected by the state of consumer credit records), the National Credit Act, and banks’ increasingly strict lending criteria.
These factors cut potential buyers out of the buy-to-let market, Pienaar said. “I do not feel that there are many buy-to-let options in Grahamstown, as most properties have been overpriced for buyers using banks to bond the property.
Those buying for cash would, however, benefit if the property they invested in was priced correctly at the time of the purchase. If not they would have a long-term investment before any capital growth.” Timm disagreed. “We have many good-value properties on the market at the moment, she said, which are ideal for buy-to-let, following a few years of this being unobtainable.”
According to Armitage, buy-to-let is a good investment and better than putting your money in the bank, as your annual return could be as high as 9.5% as opposed to a bank return of about 5.5%. Although the buyers’ rule of thumb is “location, location, location”, Timm said that this changes slightly in the rental market.
When buying to let, consider “location, maintenance and re-sale value” Timm said, because it is important to know what options you have should the rental market not be as buoyant. Serious sellers need to look at comparable properties when entering the market, Timm said, as buyers will find homes at more affordable prices. Pienaar added that correctly priced properties sell quickly.
