Author: Seeff, 17 October 2018, News
2018 is the year of the Big Squeeze – and an ideal buyers’ market
“Times are tough in our industry, but for buyers who have cash on hand it presents an opportunity to secure a property at pricing that may not have been possible otherwise. In order to better understand the impact on property transactions for the first seven months of 2018 compared to the same period in 2017, I have analysed the sales across several main areas of trade across the Dolphin Coast and then compared the findings to a sample of Western Cape estates and suburbs.
“Our flagship estate along the Dolphin Coast is Zimbali Coastal Resort, which represents the high end of the residential property market within KZN. It has also been the most negatively affected, with transactions across the top end of the market dramatically down. For the first seven months of 2017 Zimbali delivered R419,042,100 in gross sales across 65 transactions. For the same period in 2018, the gross sales concluded declined to R119,583,450 across only 19 sales. This R300m difference represents a 71.46% decline in the market.
“When a market shrinks by over 70% from one year to the next there is bound to be some pain being experienced by the people that service that market. Faced with these figures I extended my analysis to other estates along the Dolphin Coast. Simbithi delivered 78 sales to the value of R276,179,730 for the first seven months of 2017; over the same period in 2018 gross sales had declined to R146,040,000 across 37 sales. This R130m difference represents a 47.12% decline. While not as bad as Zimbali, it remains material.
“I started working down the average price point to review estates such as Brettenwood, Dunkirk, Palm Lakes Estate and Seaward Estates to determine if the decline in sales activity was impacting only the higher-end residential market, and to what extent different price brackets had been affected. Brettenwood showed a R40.5m decline (-46.97%) in sales, from R86.3m in the 2017 period to R45.8m in 2018 with unit numbers down from 25 to 15. Dunkirk made R66.8m across 13 sales for the seven-month period in 2017 versus R37.7m and 10 sales in 2018. This was a similar (43.52%) decline. Palm Lakes Estate delivered an impressive R143.8m in sales across 88 transactions in the 2017 period, and the Deeds Office figures show R78.7m from 37 sales in 2018 – a 45.27% or R65.1m decline over the same period.
“The average price transacted at Palm Lakes in 2017 was R1,633,582 and for 2018 it was R2,126,538, indicating that the decline is prevalent across the full price spectrum. Even Seaward Estates – that has long delivered an almost predictable R120m in sales every year – showed sales of R86.4m (34 sales) for the first seven months of 2017 and then only R49.3m (20 sales) for the 2018 period, representing a R37.1m or 42.91% decline. The average price of a Seaward sale in 2017 was R2,540,294 and for 2018 it was R2,465,325.
“To compare the Dolphin Coast experience to other areas nationally I looked at four main areas in the Western Cape – two flagship estates and two suburbs representing the very high end of the residential property market. I started with Pearl Valley, which produced R275,340,000 in sales from 65 transactions for the first seven months of 2017. For 2018 the figures had declined to R104,615,000 from 14 sales – a R170.7m or 62.01% decline. Neighbouring Val de Vie Estate had a whopping R475,457,598 from 160 sales for the 2017 period, while for 2018 this has declined to R200,645,228 from 51 sales, representing a drop of R274,812,370 or 57.80%. This is not quite as extreme as experienced at Zimbali – but nevertheless indicates a dramatic decline in market activity.
“Lastly I considered the suburbs of Clifton and the V&A Waterfront. Clifton showed a cool R580,950,000 from 19 sales in the 2017 period (average price R30.6m, with one sale at R130m for a 558 sqm apartment at The Beaches). For the same period in 2018 sales were down to R171,135,000 from only 10 transactions or a 70.54% decline. For the same period the V&A Waterfront showed R536,411,101 from 37 sales in 2017 and only R219,636,259 from 15 sales in 2018, representing a decline of 59.05%.
“Nationally we are facing a property market under extreme pressure, with markets having shrunk by over 70% at the top end and typically between 40% and 60% across the full range of price points. This is what defines the ideal buyers’ market.
“We are reminded of some wonderful quotes from legendary investor Warren Buffet. The first pearl of wisdom is: ‘Be fearful when others are greedy and greedy when others are fearful’. The other one I love is ‘The most common cause of low prices is pessimism – sometimes pervasive, sometimes specific to a company or industry. We want to do business in such an environment, not because we like pessimism but because we like the prices it produces. It’s optimism that is the enemy of the rational buyer.’
“In South Africa at the moment we are at the low ebb of a market characterised by pervasive pessimism. The smart money is currently taking advantage of this by buying aggressively.”
Contact Seeff Dolphin Coast Andreas Wassenaar Cell: 082 837 9094 Email: andreasw@seeff.com. See also www.seeff.com. See Andreas’ blog at
andreaswassenaar.blogspot.com