Property's higher income segment areas flourish - FNB

A slowdown in the rate of residential property selling to downscale due to financial pressure has been cited as the reason for the improvement and increased strength of the higher-income segment areas.

John Loos, a householder and property sector strategist at FNB Home Loans, said the prolonged period of low interest rates had helped households to strengthen their financial positions somewhat, which had also led to the increase in the level of selling to upgrade to better properties.

"Both of these shifts in motives for selling have been visible in the FNB estate agent surveys in recent years and both should militate in favour of the higher-priced segments, as a declining proportion of demand shifts down the price ladder and a bigger portion shifts up," he said in the latest FNB residential property barometer.

But Loos said the percentage of sellers in the various segments who were selling to downgrade due to financial pressure continued to move in a very narrow range. He said the middle-income segment had seen this motive for selling averaging 16 percent while the other three segments were hovering slightly lower at about the 14 percent mark.

He said the estimated percentage of sellers believed to be downgrading due to financial pressure had declined by the largest magnitude to date in lower-income areas since the peak of 38 percent in the second quarter of 2009.

But Loos warned that low interest rates masked many financial frailties and to be careful in drawing conclusions about the sustainability of this improved financial performance. Interest rates had started to rise this year and the lowerincome end was arguably the more interest-rate sensitive because it was highly credit dependent, he said.

He said the sample of FNB estate agency survey respondents from the upper-income area segment of the residential market returned the highest estimated activity rating for their areas for the four quarters up to and including the third quarter of this year.

He added that there appeared to have been a shift in the "sweet spot" in the residential property market from the middle-income segment towards the upper-income segment during the past four quarters, with upper-income area agents the most upbeat on activity levels by a small margin.

However, Loos said not all of the different survey question responses had yet confirmed the upper-income area segment was the strongest.

One indicator besides the activity level rating that may be increasingly supportive of this assertion was the average time properties remained on the market before being sold.

Loos added that the average time an upper-income area property remained on the market before being sold remained longer than the lower-priced segments "as is arguably normal", but the upper-income area segment had seen the most noticeable decline in its average time on the market over the past year or so.

The survey found the average estimated time that homes were on the market prior to sale was 12.1 weeks for the lower-income property segment, 11.2 weeks for the middle-income segment, 13.5 weeks for the higher-income segment and 16.9 weeks for the high-net worth segment.

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