Myths, facts and tips from a residential property pro

Estate agents, says Schalk van der Merwe, co-franchisee with his father Johann, of the Rawson Property Group’s Somerset West and Strand franchises, are these days increasingly asked for advice on the market that is based on sound facts, not vague assumptions. It is for this reason, says Van der Merwe, he regards his franchise’s regular information dissemination meetings with estate agents as crucial to the entire operation.

“Right now,” says Van der Merwe, “it is often said that the Helderberg Basin is in a sellers’ market. However, this is not true across the board and both sellers and buyers should be aware of this. Currently in Somerset West, for example, the market is slanted in favour of the seller in the high demand R1 million to R2,8 million bracket, while in Strand and Gordon’s Bay it is the R700 000 to R1,4 million bracket that is really booming.

“Anyone selling in those price ranges can often achieve a sale in five to 10 days, provided the home is correctly priced.

“The seller can also expect offers to match or be higher than the asking price.

“Again in other brackets, however, both above and below the high demand brackets, it is quite possible that sales will take far longer and that price negotiation may be necessary.”

“In market conditions of this kind,” says Van der Merwe, “it is absolutely essential to appoint an estate agent who is totally in touch with the market and can justify with data the price he or she is recommending.

“In these conditions it is possible that the seller in a high demand bracket will be surprised at how quick and how positive the response to his advertised property has been, and he might be tempted to suggest that the price could have been higher.

“That is flawed thinking because experience has shown that today, buyers are adept at research and all too often immediately spot when a home is overpriced.

“Such homes then ‘stick’ and ‘go stale’ on the market and actually lose value before selling.

“Another effect of the current conditions is that buyers, for their part, are concerned they may be overpaying.

“Those with this worry could check out what the replacement value of the home is.

“It is here, again, that a good estate agent can be helpful because a truly professional estate agent will know the costs of land and of building both on an overall basis and on a per metre square basis throughout his area.

“Right now,” says Van der Merwe, “the replacement cost is likely to be 10% to 20% higher than the sale price – two years ago it was 30% to 40% higher – and if that applies to the home in question, as today it so often does, that is a surefire guarantee the home will prove to be a good investment.”

Another important piece of advice passed on by Van der Merwe to buyers, one which should, he says, influence their bids, is to take time to check out the latest municipal valuation on the property they are contemplating purchasing.

It is acknowledged by the council that these valuations, often based on average desktop calculations, are today often inaccurate and therefore are due for quite radical adjustments.

They can, for example, be influenced downwards by nearby plot sales, but in the long run almost all will inevitably rise by 50 to 150% over the next 12 to 24 months and this, it should be realized, could cause financial distress to the buyer, a factor which should be taken into account.

Buyers, adds Van der Merwe, should also realise what is happening in the bond market.

“Formerly banks often gave mortgage loans at prices of minus 1% or 1,5%. Now the trend is to give bonds at price plus 1% or 2%.”

Van der Merwe suspects this is due their anticipating rises in the prime rate, a long awaited reaction to the rising inflation now being experienced in South Africa.

“If, therefore,” says Van der Merwe, “the seller is disappointed with the offer that is made by the bank, he should be very careful about rejecting it because it will quite likely prove as good an offer as he will get.”

Looking at the property market as a whole, Van der Merwe says that one factor, apart from ongoing price rises and continued demand, stands out as justifying property as an excellent investment.

This is the steady rise in rentals, which in turn means any home buyer is usually able to cover 80% of his monthly bond repayments from day one, with 100% coverage achieved usually in under three years.

This means even if a buyer has a bad patch financially, for example, by losing his job, he is very often able to survive by renting out his home and himself becoming temporarily a tenant.

Apart from that fact, the overall returns in rentals definitely match those of today’s money market.