The survey results were then compared to deeds office data using transactions by individuals (natural people) believed to be mostly residential transactions of a broader market and not only investment properties. This data for the month of June 2016 indicated that 8,3% of properties traded at pricing of 5-50% below the original purchase price, with an additional 3,7% of sales concluded in the 0-5% less than original purchase price. This means that 12% of sales were concluded at prices up to 50% below the original purchase price which dispels the myth that in a market with average price indices rising all property prices are rising. In our recent history we see that post the 2009 recession, up to 20,9% of sales were being concluded at lower prices than purchased at. Over the past two decades the worst was experienced in January 1999, shortly after the dramatic interest rate spike of Oct 1998, when prime rate peaked at 25,5%, and up to 31.9% of re-sales were being concluded at pricing below which they were purchased at.
At the absolute peak of the property market boom in 2006, we note that 2,1% were still trading at prices below their purchase prices. This begs the question as to why this occurs even in the most buoyant of property markets? The FNB report provided insight into their view of the five key factors that contribute to the level of sales prices achieved being below the original purchase price.
Firstly at any given time certain residential areas are in decay and their home values would be in decline. Secondly, a home is a depreciating asset if not fully maintained, and at any given time there is a portion of homes that are not being fully maintained. Thirdly, financial pressure can force a hasty sale which could result in a below market selling price. Fourthly, the need to relocate to another region hastily could mean a selling price at below the market average in order to achieve this. Finally there may be a portion of sellers at any given time who simply paid too much at the time of purchase for whatever reason and then when it comes time to sell, struggle to realize a price above what they bought at.
The essence of this analysis is that you make your money in property when you buy not when you sell.
For further information and an interactive analysis of this article follow my blog: andreaswassenaar.blogspot.com.
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