There are all sorts of stories about the neighbourhoods we live in: some used to be slightly derelict and crime-ridden and have now been revived and become sought-after; others used to be considered affluent and in great demand but are now in decay.
Homeowners over the years have, therefore, seen their property values go up or down based on the state of their neighbourhoods, with some deciding to sell when they saw the crime and grime start to creep in.
Unfortunately though, says Ynnis Wilson, branch manager at Jawitz Properties Randburg, Gauteng, most homeowners spot the signs of degradation in their suburbs too late.
When the signs are noticed though, Morne Veer, franchisee of Rawson Properties Bellville, says the sooner homeowners get involved, the better.
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“There are many social challenges in South Africa, and more and more suburbs have to deal with social decay in one way or another. Local municipalities have limited resources and need to be kept abreast of rising problems and/or incidents – and this is where homeowners can play a critical role, not only in communication but in activities such as Neighbourhood Watch programs.”
If my neighbourhood is deteriorating, should I sell my home?
Selling one’s home is a very personal experience though, and Wilson says it is really up to the individual’s circumstances as to when the best time to sell is.
“If you can afford to sell and buy in a more desirable area then absolutely do so. However, it is likely that once you start noticing the degradation, it is usually too late, and you will likely have to adjust your pricing to the change in the neighbourhood.”
The situation is a “tricky” one, says Kyle Newman from Tyson Properties Western Seaboard in Cape Town, explaining that one’s decision is influenced by more than the degradation of the suburb.
“You must consider what is happening to the suburbs around you. Are they falling victim to the same degradation or are they thriving?”
Another thing to consider is whether one is able to sell and buy something new in a different area that works for the family.
“Each situation is unique, but my recommendation would be to get advice from the local real estate agents and look at selling as, even if the area recovers, (it may not be) trusted by some potential buyers. If you do decide to hang on, eventually the prices will start to rise again.”
Deciding when to sell depends on how long the homeowner has lived in the property, how it is currently financed, and their future needs, says Hayley Vann-Herbert, branch manager at Jawitz Properties Southern Suburbs.
“If you have bought in the last few years and paid above or close to market value at the time, you may lose value or receive a similar sales price to that at which you bought.
“If you have paid off your home, it may not be feasible to move and incur new debt when you have a fully paid asset. It also depends on the area and if it still meets your needs and requirements.”
She adds that a home’s value can be subjective.
“One must look at comparable properties and what the market is willing to pay for it at the current time. Even then one cannot dictate at what price point the buyers will perceive value. Value is determined by the market. One can look at index value, market comparisons, or even municipal valuations, but it is only a certainty once it has gone to market and received response, either negative or positive.”
Noelene Snyder, franchisee for Rawson Properties Kuils River believes that homeowners should sell “as soon as possible” while they have the opportunity to make a profit.
“When you notice that infrastructure is falling, move as soon as you can… It is advisable to sell before the area becomes even less desirable.”
She does note, however, that an agent has to take into consideration the circumstances of the homeowner before advising them.
For those who can afford to sell, Veer says an objective view must be taken as to whether the owner believes that there is potential for positive change in the area.
“Perhaps consult with the local municipality, other government departments, and local community organisations about the problem, and then make a decision.”
Over the years, Romona Reddy, candidate property practitioner at Jawitz Properties Eshowe, KwaZulu-Natal, has noticed that when an area starts to degrade, homeowners who have lived in that area for a long time tend to reach out to the local municipality or council and take the initiative to maintain the upkeep of the area.
“If this fails, they end up selling at a market-related price as a way of getting out of the area before values further decrease.”
How much money will I lose?
Whether or not it is still feasible to sell would depend on the situation, Newman says.
“Some clients would take the loss in order to get out of the area, whilst others may not even lose money at all. If, for example, they bought the property years ago, the price they paid then is probably lower than the current value, even with the degradation of the suburb.”
How much money one could lose depends on when the property was initially purchased, agrees Wilson.
“If you recently bought your home (less than 5 years ago) then there is a chance you will sell for less than what you paid for it.
She adds that the risk of staying in an area that is degenerating is that the value of a property could continue to fall and selling could eventually become a non-viable option.
Echoing this, Reddy says: “Over time, as the area loses buyer appeal, it will be more difficult to achieve a good price for the property.”
Newman says he would always advise a homeowner to sell if their property was bought at a time when values where lower than they are now.
“I would also advise clients to sell if the area is becoming extremely unsafe to live in.”
Sometimes, says Veer, selling is unavoidable if the degradation is clear and obvious, and also unlikely to be changing in the foreseeable future.
“Looking at the bigger picture, for some property owners it becomes a case of ‘sell at all costs’, and ‘feasible’ no longer plays a role. The property owner will be forced to consider what a willing and able buyer is prepared to pay him/her for the property, which is sometimes not remotely close to what the owner paid.
“Keep in mind that the market and property condition itself is now totally different.”
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Often, he adds, banks will also withdraw themselves from providing home loans for potential purchasers in such areas, blocks, or developments, causing the owner to only have option of hoping for a cash buyer who may make an “opportunistic offer”.
David Jacobs, Rawson Property Group’s regional sales manager for Gauteng says price is always a considering factor.
“For every property there is always a buyer, whether that property is dilapidated, or the property has just not been taken care of by the owner, or a property is in a degenerated area. Every pot has a lid. The price and value of a property is an equal term, the value of the property determines the price.”
He warns that overpricing a property in a degenerating area might extend the time it takes to sell, and within that period degradation might worsen.
“It might take six to nine months to sell the property while the degradation may increase rapidly within that waiting period and if your price is not reasonable and relevant then I think you’re making a mistake. So if you are selling for that reason, make sure your property is priced right from the start.”
He advises homeowners to follow suburb trends and know what is going on rather than just making a decision based on a pot hole that has not been repaired for over a week.
“For example, if the municipality in the area is not performing as expected, and you see the signs of degradation becoming more prominent and are confident that this may not get better, then it may just be time to consider selling before things start degrading on a faster pace.
“Do not carry on living there until the problem has extended to such a state that the losses are so big that you cannot recover (your costs), especially when the property is bonded.”
Snyder says: “It is better to make a lower profit margin rather than to wait too long and sell at a loss.”
For part two of this feature, which looks at why people who own beautiful properties in decaying areas choose to stay, and also who would buy a home in a derelict suburb, read this article.