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Secondary home-buying expected to improve this year

02 Feb 2018

Seconday non-essential home-buying, which includes buy-to-let homes, weakened as the year progressed last year but was expected to improve this year, according to FNB.

John Loos, a household and property sector strategist at FNB, said this improvement was anticipated given FNB's expectation of stable interest rates this year, slightly improved economic growth compared with last year and the seemingly improved general sentiment at the start of this year using the significantly improved performance of the rand as a sentiment barometer.

Loos said although there was a very slightly higher average level of secondary home-buying last year, it was a year of two halves, with the second half appearing to be weaker than the first half of the year.

This weakness was hardly surprising, given very weak sentiment among the business community, consumers and investors in the second half of the year, with much of it related to economic weakness, he said.

"In addition, ratings agencies had been implementing widely publicised ratings downgrades to 'junk status' at a stage last year and much publicity and uncertainty had been created in the run-up to the ruling party's December elective conference, all influencing sentiment last year," he said.

Average estimated secondary home-buying increased slightly to 12.9 percent last year from about 12.4 percent in 2016.

It reached a multi-year high of 14.47 percent of total home-buying in the first quarter of last year, the highest estimated percentage since the end of 2009, but declined in the next three consecutive quarters to 11.99 percent in the fourth quarter.

Loos said these levels remained far below the pre-2008 boom time levels, which at times exceeded 20 percent.

The buy-to-let market, the main category of secondary home-buying, increased to 8.55 percent in the fourth quarter of last year from 8.23 percent in the previous quarter.

Loos said this meant a continuation of single-digit buy-to-let buying estimates, which have been a feature for most of the time since 2010.

He said these single-digit buy-to-let estimates were far lower than the above 25 percent estimates in 2004 at the height of the housing boom.

Loos said estimated buy-to-let levels were on average lower last year than in 2016, but more agents were expecting an increase in buy-to-let buying this year than a decrease.

He said one category of secondary home-buying, the buying of a home for use as a primary residence by a family member, had declined to almost insignificant levels.

Loos said this category had reached a multi-year high of 2.32 percent of total home-buying in the third quarter of 2015, but averaged only 0.7 percent last year.

He said the estimated percentage of properties being resold because of lower-than-expected investment income had risen to 4.5 percent of total properties being sold in the four quarters up to the fourth quarter of last year from 2.75 percent in the four quarters up to the third quarter of 2016.

Agents also reported a slight increase in the estimated percentage of secondary homes sold below the previous selling price to 6.5 percent last year from an average of 3.25 percent in 2016.

There was also an increase in the estimated percentage of secondary homes sold "at the purchase price" and not above to 22 percent last year from 16.75 percent in the previous year.

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