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The South African property market shows moderate improvement

Property market South AfricaThe South African residential property market showed a mild improvement and small increase in demand in August 2011 according to the FNB Estate Agent Survey.

The percentage of sellers having to drop their asking price to finalize the sale increased still further from 87 percent in Q2 2011 to 91 percent in Q3 2011.

The third quarter report confirmed that there was slightly better residential property demand. However, the agents did not indicate an improvement in the balance of demand relative to supply, which would suggest that property price growth is set to remain stagnant.

John Loos, FNB Home Loans property strategist say the property industry remains tense. At least 23 percent of estate agents cited economic burden and general pessimism as key factors influencing their near term expectations.

“We believe that while the estate agent survey demand is mildly encouraging, not too much should be read into it yet,” says Loos. Loos explains that the report also indicates a drop in the percentage of sellers selling their homes in order to downscale due to the financial situation.

Cape Town in 2011 is clearly a buyer’s market. Loos says the average time that a property remains on the market before being sold rose from 15 weeks and 1 day in Q2 to 17 weeks and 1 day in Q3 2011. The percentage of house owners having to decrease their asking price to finalize the sale rose still further from 87 percent in Q2 2011 to 91 percent in Q3 2011 and the average percentage drop increased from 11 percent in the previous quarter to 13 percent in the third quarter.

“We believe the financial pressure-related reason for selling is a strong source of support for the rental market.” He says a significant portion of these previous home owners probably move into the rental market for the time being as opposed to buying a cheaper home instantly. Estate agents taking part in the survey reported that 46 percent of sellers would be renting after the sale and 54 percent would buy again instantly.

The survey also demonstrates that another cause for selling is selling in order to upgrade. The percentage of sellers in this category declined from 16 percent in Q2 2011 to 15 percent in Q3 2011. The percentage of sellers selling in order to relocate elsewhere in South Africa remained unchanged at 7 percent, lower than the 8 percent from mid-2010 to early-2011.

The group of sellers dominating the residential property market is those selling to downscale to accommodate life stage. This group as a percentage of total sellers has increased to 23 percent, the highest percentage since the beginning of 2008. Estate agents reported a renewed increase in the number of serious viewers during show houses from 13.57 buyers to 15.05 buyers in the third quarter.

Demand appears to stay weak relative to supply, with the average time on the market having risen in the third quarter. Loos [explains|says] that one of the most [worrying|concerning] trends continues to be the estimated average time that a property is on the market prior to [being sold|changing owners].

“The average time has become more volatile from quarter to quarter since the market thinned during the 2008 recession.”

Consumer protection act – does it affect property sale in South Africa?

Cape Town property sale - Hout Bay real estateThe long awaited Consumer Protection Act (CPA) came into effect in South Africa on 1 April 2011. Fundamentally changing the way business is conducted in South Africa, the law regulates the way products and services are marketed and makes South Africa among the most consumer-protected countries in the world.

We have explored the most important changes relating to Real Estate property transactions below:

Most importantly the Consumer Protection Act grants consumers the right to cancel certain contracts within a “Cooling-off” period of five business days.

Secondly, the Act modifies the way the voetstoots clause is applied in Real Estate contracts.

The third is about changes with regard to the letting of property.

1) Cooling-off period
If it comes to a property purchase because of direct marketing efforts, the real estate buyer has the right to cancel the sale within 5 business days. This law is commonly known as the cooling off period.

Keep in mind this only applies to property sales due to direct marketing and not purchases due to marketing through show houses or traditional print ads. Nor does it apply to any property purchase made by a client that the estate agent is already working with. Such deals generated by mentioned forms of marketing do not fall within the scope of the Consumer Protection Act.

There is some good news with regard to whats considered the start of the “cooling-off” period. The date of delivery of the goods is the official start of the “cooling-off period”. In property terms this means the date of transfer of the House or flat into the buyers name, not the date of signature of the contract. In actual fact the buyer has 3 to 6 months to develop second thoughts. Of course a cancellation after several months can be complicated for all the parties involved. Also keep in mind that this is a yet untested law. It remains to be seen how it will be interpreted by the courts.

The “cooling-off” period only kicks in when the property purchase price is less than R250 000. This clause is covered in South African Property Law, in terms of Section 29a of the Alienation of Land Act. This provision is not effected by the new Act and will stay in place.

2) “Voestoots” clause
“Voetstoots” is an Afrikaans term derived from Roman Dutch Law. It literally means “as is”. Prior to the introduction of the Consumer Protection Act, all property was sold “as is”. Luckily for the buyer, the Consumer Protection Act modifies this.

Since 1 April 2011, developers, speculators, and investors owning real estate portfolios who sell real estate in their ordinary course of business, can now be held liable for defects.

An ordinary once-off sale does not fall within the scope of the Consumer Protection Act. Once-off sellers may continue to rely on the protection of the “voetstoots” clause.

For more information how the Consumer Protection Act affects lease agreements click the link provided.