For those involved in the property industry, 2018 to date has surprised many in terms of the extent of the contraction.
“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,” says licensee and principal of Seeff Dolphin Coast, Andreas Wassenaar, who outlines what makes this the year of the “big squeeze” and why this is great for potential buyers.
In order to better understand the impact on property transactions for the first seven months of 2018 compared to the same period in 2017, Wassenaar analysed the sales across several main areas of trade on KwaZulu-Natal’s Dolphin Coast and then compared the findings to a sample of Western Cape estates and suburbs.
Sales down in KZN Dolphin Coast's top estates
Wassenaar says Zimbali Coastal Resort, the Dolphin Coast’s flagship estate, which represents the high end of the residential property market in KZN, has 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, he says, while for the same period in 2018 the gross sales concluded declined to R119 583 450 across only 19 sales.
“This R300 million difference represents a 71.46% decline in the market,” says Wassenaar.
“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.”
Looking at Simbithi, he says there were 78 sales to the value of R276 179 730 for the first seven months of 2017; over the same period in 2018 gross sales declined to R146 040 000 across 37 sales.
“This R130 million difference represents a 47.12% decline,” says Wassenaar. “While not as bad as Zimbali, it remains material.”
He then 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 R40.5 million decline (-46.97%) in sales, from R86.3 million in the 2017 period to R45.8 million in 2018, with unit numbers down from 25 to 15.
Dunkirk made R66.8 million across 13 sales for the seven-month period in 2017 versus R37.7 million and 10 sales in 2018. This was a similar (43.52%) decline.
Palm Lakes Estate delivered an impressive R143.8 million in sales across 88 transactions in the 2017 period, and the Deeds Office figures show R78.7 million from 37 sales in 2018 – a 45.27% or R65.1 million 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 R120 million in sales every year – showed sales of R86.4 million (34 sales) for the first seven months of 2017 and then only R49.3 million (20 sales) for the 2018 period, representing a R37.1 million 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.”
Western Cape shows a similar drop in sales
To compare the Dolphin Coast experience to other areas nationally, Wassenaar 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.
He says Pearl Valley produced R275 340 000 in sales from 65 transactions for the first seven months of 2017, while for 2018 the figures had declined to R104 615 000 from 14 sales – a R170.7 million 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%,” says Wassenaar. “This is not quite as extreme as experienced at Zimbali – but nevertheless indicates a dramatic decline in market activity.”
In Cape Town, Clifton showed transactions of R580 950 000 from 19 sales in the 2017 period, at an average price R30.6 million, with one sale at R130 million for a 558sqm apartment at The Beaches, he notes.
“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,” says Wassenaar. “This is what defines the ideal buyers’ market.”
He reminds us of some 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, Wassenaar says 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.”
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