High-net-worth metro areas property taking strain – FNB

Published Jan 25, 2012

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Roy Cokayne

The high-net-worth segment of the residential property market in metro areas is taking strain and delivered a sub-par performance last year.

It was the only segment to register a deterioration in the overall financial strength of home buyers/sellers during the year and had the lowest demand rating of the four segments, according to a report released by FNB yesterday on its home buying estate agent survey by segment.

John Loos, a household and property sector analyst at FNB, said that in each of the four income segments of the market, FNB subtracted the percentage of sellers selling to upgrade from the percentage downscaling to get the “net financial strength-related downscaling”.

Although the middle-income segment had the lowest percentage of net financial strength-related downscaling of the four segments at 4 percent of total selling last year, the high-net-worth segment at 4.8 percent was the only segment that weakened compared with 2010.

The upper-income segment had a net financial strength-related downscaling percentage of 6.5 percent and the lower-income segment 10 percent.

FNB defined high-net-worth residential areas as those with average house price of R3.7 million last year, upper-income areas averaged R2.2m, middle-income areas R1.2m and lower-income areas R679 000.

Loos said that the high-net-worth segment appeared to have been the underperformer in the major metro housing market but this was arguably not surprising.

He said that the high-net-worth segment was possibly less interest rate sensitive than the lower end of the market because it was less credit dependent than the lower end.

One would therefore expect the high-net-worth segment to have shown less of a mini-recovery in 2010, given that this recovery was largely driven by massive interest rate cuts.

Loos said that FNB’s perception was that the high-net-worth segment was more “economy dependent”, with high-net-worth households receiving greater portions of their overall incomes from business/investment income and discretionary remuneration, which performed weaker in tougher economic times, such as in the past four years.

Relatively tough financial times in the household sector as a whole should also be expected to drive demand towards the more affordable parts of the market and also benefit the lower end more.

Loos said that the astronomical increases in municipal rates and utilities tariffs bills was also affecting the top end of the market far more severely.

“The list of possible reasons for the high-net-worth segment’s apparent sub-par performance is therefore lengthy.”

Loos said that South Africa looked set to head into a year of slower economic growth this year so FNB anticipated “more of the same” with the lower-priced end of the residential market showing a better relative performance than the higher priced segments. However, all segments were expected to experience something of a slowdown this year.

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