More SA homeowners investing in upgrades

More South African homeowners are investing in their properties with a view to “adding value”, but with the interest rate rising this trend could start to slow down.

The FNB Estate Agent Survey for Q2 2015 showed that from only 3% of homeowners estimated to be doing value-adding upgrades in the first half of 2013, the percentage had risen to 21% by the second quarter of 2015.

“This remains far from the 43% achieved in 2004, but is nevertheless a strong number, and is the highest estimated percentage since the third quarter of 2008,” says John Loos, household and property sector strategist at FNB.

“Following the financial shock of the 2008/9 recession and interest rate peak, the first priority for many households was merely to get standard home maintenance restored to full levels in cases where this had been deferred.”

The category of homeowners “fully maintaining their property and making some improvements” appears to have settled, no longer showing a rising trend, says Loos.

However, he says this is not necessarily due to homeowners shifting into lower levels of home investment, but possibly due to a portion shifting up into the “value-adding upgrades” category.

In the first half of 2015, this category recorded an estimated percentage of 41%, which is the same as its average for 2014 as a whole.

The percentage of owners “not improving but still fully maintaining homes”, showed a decrease from 29% in the previous quarter to 27% in the second quarter of 2015, the third successive quarter of decline for this category.

Loos says this all translates into a slight second quarter increase in the category that one would rather want to see declining - the “percentage of homeowners attending to basic maintenance only”, which in effect means the home will fall into a state of disrepair over time.

This percentage rose from 9.5% in the 1st quarter of 2015 to 10.5% in the 2nd quarter.

Those owners allowing their homes to “get run down”, in the areas surveyed, returned a fairly insignificant 1% in the second quarter, he says.

Although the second highest category, “maintaining and making some improvements”, saw its percentage decline slightly, together with “value-adding upgrades”, the second quarter saw a rise in the combined percentage of the top two levels of home investment.

Loos says this has resulted in a further improvement in the overall perceived level of home maintenance and upgrades.

He says the rising trend in home maintenance levels also continues to be reflected in the numbers for retail sales for hardware, paint and glass product retailers. For the three months up to and including April, real sales in this category of retail grew by 9.7% year-on-year, far outstripping overall retail sales growth.

This category of retail has outpaced total retail sales growth through much of the 2013 to 2015 period, and he says this is believed to be a result of the recovery in home investment levels in recent years.

“Finally, with regard to the reasons for why people undertaking home improvements are doing it, our agent survey still points to limited speculative building behaviour, to the tune of 9.5% of total home improvements,” says Loos.

“This remains low when compared to the 24.5% estimate back in early-2006. The overwhelming majority of homeowners, approximating 75%, still do it for their own use, while 14% do it because they ‘can’t afford to buy elsewhere’.”

Given what has recently happened to consumer confidence, though, Loos says near-term trends in home investment will be interesting to watch, as low consumer confidence could signal a more cautious approach to consumer spending levels in general.

“In addition, we expect interest rate hiking to resume in the near term, as CPI inflation accelerates back up to near to the South African Reserve Bank (SARB) upper target limit.”

He says when tougher financial times arrive, due either to a weak economy or rising interest rates, home maintenance and upgrades are often deferred to a later date, as more pressing expenditure pressures take preference.

All of this could possibly mean that the upward trend in home maintenance and upgrade levels could slow, or come to an end, later in 2015, says Loos.

“So far so good, though. The situation continues to appear healthy, with good levels of maintenance, significant upgrades, and not a lot of speculative activity.”

 

Source: Property 24

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