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Property Talk

Property Talk

Author: Andreas Wassenaar
Date: 2017-12-08
The value of your home will always increase

In a world of uncertainty there are some things that seem to remain predictable and certain. Death and Taxes are often quoted as the certainties you can rely on in life, but in the real estate market there seems to be another one.

A seller will always want more for their property than a willing and able buyer is prepared to pay. These above market expectations are usually re-enforced by a myopic view of their own property relative to the available stock of homes in the greater neighbourhood or suburb, failing to draw realistic comparisons.

When I think about it, this consistent over-valuation of properties by sellers is perfectly rational. It seems to be human nature. We are creatures of habit and tend to resist change on average. We get used to and comfortable with our living and working environments and create an impression in our own minds of the relative value of these places we find ourselves in.

Very few property owners have the ability to critically evaluate their own properties. The wonderful thing about the market is that it disciplines sellers and always, on average, ends with realistic market pricing over the long run. Both buyers and sellers ignore the market and the price signals it displays at their own peril.

These market price signals are clearly evident in the recently published FNB House Price Index. The November 2017 figures are available and show year-on-year growth of 4,5%. This is up slightly from the 4.4% in Oct 2017 and the 4.1% in Sept 2017.

However, despite this recent increase the average house price growth for 2017 as a whole is expected to be around 3%, down from an average of 4,7% in 2016 and 5,9% in 2015.

If house prices are deflated by the CPI to get an impression of real inflation adjusted pricing, we are still in negative territory with real house price deflation of -0.4% year-on-year. This is an improvement on the deflation of -4,8% reached in December 2016.

So for the past ten years average real house price growth has been relatively flat in the wake of the massive price adjustment experienced during the 2008/9 recession. If we consider the pricing as far back as the end of 2000 then real inflation-adjusted pricing is up by 62.5%.

Nominal pricing for the same 17-year period is up by 318.26%. The predictability of rates of capital growth of property is reasonably hard to determine and the time to speculate in certain categories of properties is when everybody is still negative but all the trends are indicating a positive future.

Limited stock of a certain type of property, such as vacant land in Zimbali Coastal Resort, is also a signal that the relative price of that class, faced with increasing demand, will accelerate faster than the average growth rate.

The lesson to learn from all of this is that the value of your home will always increase - you just have to live long enough.