Home Owners Stay 14 Years In House Before Selling - Sales In Execution Drops
A decade ago, home owners would sell their properties every seven or eight years. Now they are holding on for an average of 14 years before selling their residential properties.
Figures from Lightstone Property show the trend is the same for buyers of second, third and fourth residential properties. A decade ago, owners of second properties would hold on to them for about five years before flipping. Now it is close to 10 years.
It's a sign of our fraught economic times. The property bubble of a decade ago is well and truly punctured, with diminishing prospects for speculators. The days of 15% to 20% annual house price increases are gone, forcing home buyers to play the long game.
FNB's House Price Index has been skidding sideways at about 3.3% in recent months, unable to keep up with consumer inflation.
First-time buyers are staying longer in their homes because this is generally where they live. In the past, buyers would either sell their properties voluntarily, or as a result of foreclosure. But stats from Lightstone show the number of properties entering the sale in execution process (a legal process following default on mortgage loans) has dropped dramatically - down from over 1 000 per month during 2015 to less than a 100 in 2019.
Paul-Roux de Kock, analytics director at Lightstone, says most mortgage loans issued in SA are for 20 years, though most of these are settled ahead of time. This much is known from an analysis of deeds data in recent years. Despite this, a growing number of homeowners are taking longer to settle their mortgage loans.
"It is important to note that in the majority of cases, the reason for early home loan settlement is associated with the sale of the property so it also provides a good proxy for how long people generally stay in their homes. As expected, the first property homeowners buy is more likely to be occupied by the owner as a primary residence and therefore less likely to be traded for investment activity."
Buyers of second, third and fourth properties are likely to hold these properties for less time, as these are more likely to be traded for investment purposes. "What is interesting though is that even for these investment properties the settlement time has steadily been increasing over the last decade, indicating that more of these properties are now held as longer term income generating assets rather than speculative capital growth assets," says de Kock.
The drop in the number of properties sold in execution is the result of courts being less sympathetic to banks seeking foreclosure as a first resort, and recent court cases in Gauteng and the Western Cape requiring that properties be sold with reserve (or floor) prices. This was to stop properties being sold for a fraction of their worth, which was a common occurrence in the past.
Banks themselves have stepped away from seeking sales in execution, preferring to reach accommodation with customers in financial distress. In papers filed in court cases last year, banks claimed they used sale in execution as a last resort, though this is contested by some in the legal profession.
"I'm not convinced the banks are being honest when they say they use sale in execution as a last resort," says legal consultant Leonard Benjamin, who is defending several debtors against foreclosure.
"In many cases we have seen, the banks are initiating legal proceedings after just two or three months in default. We say there are better ways to recover loan arrears that do not involve foreclosure, since losing the house one lives in is such an extreme and inhumane way to go about debt recovery. Also, banks have gone under oath in court cases before the Gauteng and Western Cape claiming they go to great lengths to seek alternative methods of debt recovery. That would be wonderful it true, but in many cases I have seen this is not the case."
In court papers filed last year in the two high courts, it emerged that sales in execution typically take up to 28 months from the moment the defaulting client is handed over to the bank's legal department. This provides the defaulting client with time to reach an accommodation with the banks.
Building completions likely to slow down
Statistics SA figures show that building completions are at their highest level in nearly a decade, but this is unlikely to last. "South Africa is into the longest business cycle downturn in the post-World War 2 era, the existing home market is well-supplied and price competitive, and new residential building affordability has deteriorated relative to existing home prices as well as relative to household incomes, according to our affordability indices," says FNB property strategist John Loos in a recent newsletter.
"A slowdown in the level of residential completions in the near term should be expected given the current environment. And indeed, a further sharp year-on-year decline in the number of residential units' plans passed to the tune of -24.8% in the second quarter, a useful leading indicator for building activity trends, suggests that such a near-term slowing is likely."
PayProp data shows that rental increases across the country are also struggling to keep up with inflation.
FNB's Property Insights points out that mortgage lending is a leading economic indicator with a tight correlation to the SA Reserve Bank's Leading Business Cycle Indicator. Based on recent trends, the economy (and house prices) appear to be flatlining and will likely remain that way into 2019.