FNB calculates that, over the four quarters up to and including Q2 2016, 6% of investment properties being resold achieved a price less than what they were originally bought for. Those that were believed to have achieved close to their original purchase price were estimated at 9.25% of total investment property sales.
“In the case of this category, effectively some loss was probably incurred due to the significant transaction-related costs of buying and selling of homes,” says John Loos, FNB household and property sector strategist. “Add this percentage to that of the properties believed to be selling below original purchase price, and 15.25% of investment properties resold may have had some loss in the process.”
The outright 6% of investment properties believed to be selling at less than their original purchase price, however, is well down on an estimated 25.5% in 2012.
Some 85% of investment properties being resold are believed to be achieving 10% or more of their original purchase price: 45.75% estimated to be in the 10% to 20%+ range, 22.25% in the 20% to 30%+ range, and 17% fetching 30%+ more than the original purchase price.
“These estimates are important, especially for bonded homeowners and aspirant home buyers, because we need to understand that there is always a degree of risk of a ‘negative equity situation’ developing, which refers to a situation where a homeowner owes more than what their property is worth, and should they need to sell it, settling the outstanding mortgage debt at time of selling can become a challenge,” says Loos, noting that such risks are heightened when buyers financially “over-commit” on their home purchase. “This all makes it crucial that buyers get the buying price right by doing good research regarding prices in an area, and that they have a good understanding of the many home running-related costs so as not to financially over-commit.”
- The need to relocate to another region hastily, perhaps due to a new employment opportunity, can also in some instances force a hasty sale, at a “sub-optimal” price, on a seller.
- Financial pressure can force a “hasty” sale on certain households. When households can’t cope with the myriad of home running costs, they may have to accept offers hastily, not always being able to wait for a “good” offer.
A home is a depreciating asset if not fully maintained, and at any given time there is a portion of homes whose maintenance is not sufficient to ward of depreciation in value. Typically, the levels of maintenance can deteriorate in financially tougher times, too, with certain homeowners postponing maintenance due to financial pressure. In our most recent FNB Estate Agent Survey, 14% of total home sellers were estimated to be selling to downscale due to financial pressure – not a high number by recorded historic standards.
- At any given time there are normally certain residential areas that are in “decay”, and their home values can be in decline even though the national average house price may be on the rise.
- Finally, price setting is never an exact science, so there will probably always be a portion of buyers who “over-bid” on homes relative to what the value of comparative home values in an area may be. Sometimes it is due to lack of knowledge, and sometimes due to emotions coming into a home buying decision. Those owners may come unstuck price-wise later on when trying to sell their home.