Inter-Provincial Migration Trends

: FNB PROPERTY BAROMETER – INTER-PROVINCIAL MIGRATION TRENDS REVIEW

Western Cape continues to outperform the other 8 provinces in terms of its ability to attract repeat home buyers from other provinces.

In services-dominant economies such as South Africa’s, the ability to attract skilled labour is crucial, because skills drive such economies. As such, an indicator of a country or region’s ability to attract and retain skilled migrants is arguably one useful indicator of a region’s economic competitiveness.” So says FNB Household Sector and Property Economist, John Loos, adding that “we believe that looking at residential property transactions can provide such an indicator of the competitiveness of SA’s different regions”. To this effect, FNB has updated its Inter-Provincial Migration Trends for 2011.

The review draws on information emanating from FNB’s Estate Agent Survey, as well as from Deeds Office data analysis regarding repeat buyer inter-provincial migration trends. Referring to the Estate Agent Survey, Loos says that the results in major metros over the past year-and-a-half (since the beginning of 2011) continue to point to relatively strong levels of long term confidence being shown by the property sellers in the City of Cape Town.

“Make no mistake, Cape Town suffers a residential market mediocrity similar to other major regions currently, which is a function of a weak global economy and significant financial weakness in its household sector. “However”, says Loos, “when it comes to indicators of long term confidence in the various regions, Cape Town comes out generally better than the rest”. These indicators refer to the level of emigration-related selling of property, “semi-gration”-related selling and foreign buying in the region.

The city has the 2nd lowest emigration selling rate of the major cities, i.e. 2.7% of total sellers selling in order to emigrate over the past 1.5 years, compared to the national average of 4%, according to the estimates of the sample of agents surveyed. And when it comes to sellers selling in order to re-locate to another part of SA (“semi-gration”), Cape Town is noticeably lower than all of the other major cities with a percentage of 5.7% (National average having been 8%). Agents estimates of the number of foreign buyers of a region’s properties, expressed as a percentage of total buying, show Cape Town having a higher percentage of foreign buyers than the rest of the major metros, i.e. 5% since early-2011.

The study then delves into Deeds data to analyse the behavior of repeat buyer migration. “For this purpose, we identify all purchases by individuals where there is a corresponding sale by the same individual within 12 months either side of the purchase. It isn’t an exact science, as some holiday property buying may “interfere”, while 1st time buyers who have re-located do not get included into this figure. Nevertheless, we believe it to be a good indicator of a large portion of semi-gration flows”.

Breaking it down by province, we found the Western Cape to have the lowest outbound re-location rate of 10.7% of total repeat buyers, followed by Gauteng with 14%, the 2 largest provincial economies. The smaller provinces had the worst rates of outbound migration, with the highest estimated to be Mpumalanga on 33.9% followed by the Northern Cape with 33.1%, which arguably speaks to a lack of economic opportunity in these provinces.

On a net migration basis, i.e. repeat buyers entering a province minus those departing, it was only the Western Cape that saw positive or “net inward” migration to the tune of +9.7% of total repeat buying. Next best were Eastern Cape and Gauteng with slight “net outbound” migration rates to the tune of -0.4% and -0.6% respectively.

Clinton Martle, FNB’s Property Leader Strategist, based in Cape Town, comments that the Western Cape’s 2011 net migration performance is very much “more of the same”, with the province having had the best net inward migration for the past decade or more. “This should be a key source of long term support to the province’s economy, providing it with the potential to have superior long term economic growth to most other regions”.

And according to Loos, StatsSA estimates for the 10 years from 2001 to 2010 show the Western Cape was indeed one of the star economic growth performers, only slightly behind the top performing Gauteng, with an average annual real economic growth rate of 3.77%, compared to Gauteng’s 3.91%, making the country’s 2 major economies the top 2 growth performers.

He adds that “While Gauteng’s net migration rate of repeat buyers is considerably weaker than the Western Cape, and even slightly weaker than the Eastern Cape, we suspect that it probably has a superior inward migration rate of 1st time buyers from other regions, made up of younger people starting out on their career paths. We believe this probably to be the case because Gauteng remains by far the largest economic region and thus the one with the greatest economic opportunities.”

What seems clear from the study is that certain of the minor provinces have very significant net outward migration rates, Mpumalanga being the worst at -15.5% of total repeat buyers, suggesting steady skills losses in those provinces. These smaller provinces may therefore find it increasingly difficult to grow their economies and provide jobs in future.

Martle adds that the results of these findings have implications for the Western Cape region. In order to retain its “net inward migration” of repeat buyers, thereby attracting skills and financial purchasing power, the province has to find ways to grow in an environmentally friendly way. He believes that this is a more crucial requirement for the Western Cape than for the Gauteng region for instance, because it is the perception of a great lifestyle that is a key skills drawcard for this region, and the green environment in turn is key to quality of life. Gauteng, on the other hand, has the advantage of being the continent’s biggest economy, and the services hub not only for the mineral rich region that surrounds it, but also for Southern Africa. That is Gauteng’s drawcard for skills.

In addition, he says, land scarcity in the City of Cape Town is more pronounced than in the likes of land-locked Gauteng, causing property values to be consistently more expensive. In the 2^nd quarter of the average property price of Western Cape properties transacted and financed by FNB was R978,945. Despite having higher per capita incomes, the Gauteng price average was lower at R887,633 due, we believe, to that province being land-locked and thus not having any physical barriers to development such as mountains and sea. In the Western Cape, we thus have a greater challenge than the rest of the provinces in terms of affordability of housing and of property in general. To keep our province’s economy growing strongly will thus require innovative use of land.

Queries:

John Loos                                                                                            Clinton Martle

Household and Property Sector Economist                          Property Leader Strategist

FNB Home Loans                                                                              FNB Home Loans

Tel: 011-649 0125                                                                              Tel: 021-480 8117

Cell: 083-453 8096                                                                            Cell:  082-782 5806

Email: john.loos@fnb.co.za                                                         Email: clintonm@fnb.co.za

Tips on Scoring Home Loan Finance (Source: Property24)

South African single women account for approximately 9 percent of residential property buying while single men account for 8 percent, says FNB.

Clinton Martle, sales strategist at FNB Home Loans explains that although they do not have gender specific statistics on home loan applications, they are able to reveal that 9 percent of home buyers are single women, 8 percent single men with the balance made up of couples.

Clinton Martle, sales strategist at FNB Home Loans, explains that although they do not have gender specific statistics on home loan applications, they are able to reveal that 9 percent of home buyers are single women, 8 percent single men with the balance made up of couples.

Martle emphasises the point that whether men or women, all home loan applications are assessed on merit of income and security.

He says this is largely driven on the back of combined incomes affording more suitable larger type homes.

“By combining incomes, would-be buyers are able to buy properties better suited to their needs.”

Factors such as net disposable income and existing debt exposure coupled with living expenses all play a part in securing finance, he says.

Martle points out that since the implementation of the National Credit Act living expenses have become important aspects of assessing credit and often joint incomes are required to offset living expenses.

“Deposit requirements are also not driven on the back of gender and rather on the dynamics of the application assessed,” he says.

Factors such as supply and demand, upkeep and maintenance, credit profile and payment history are factors that will drive deposit requirements.

In the past two weeks, we have looked at ways of saving money and not relying on a man, and we also looked at ways of taking control of our money.

Now that these plans are firmly in place, it’s probably time to think about buying a home instead of renting one, provided you can afford it of course.

Low interest rates are making it easier for home buyers to enter the property market and banks have are also reportedly loosening their purse strings.

However, there are some reasons why banks reject home loan applications and Martle provides an easy guideline on what to do to prepare for that big purchase – your dream home.

He explains that the Property Leader program assists would-be buyers with the buying process upfront by pre-qualifying buyers and removing the uncertainty of ‘how much can I afford’ or ‘I hope they approve the amount I need’

While this article is mainly aimed at women (it being Women’s Month), home buying and home loan applications apply to anyone wanting to buy and own property.

Tips on scoring a home loan

1. Keep the amount of debt or short term spending commitments to a minimum

Clothing accounts, personal loans, overdrafts, credit cards and vehicle finance can erode the amount you could qualify for and it would be best to limit these, says Martle.

Having a credit facility available but not closing it still means that the credit is available and this would need to be considered when the person is applying for a home loan.

It is best to cancel or close unnecessary accounts if not being used.

Do not merely accept the annual limit increases on store accounts or credit cards due to being a good client as they can detract from the home loan amount you qualify for, he says.

2. Pay your monthly accounts on the due date

Try not to skip payments from month to month.

If an account is due on the 25th of the month, do not pay the account late as this will affect your credit rating, pay on time always.

If the minimum amount required is R500 pay the amount in full, not R300 or less as this will also reflect as part payment and detract from your overall credit score.

3. Watch out for the number of credit checks done on your profile

Martle says while it is important to shop around and make sure one is getting the best deal upfront, make sure you are aware of the number of credit checks done on your profile.

It is important to shop around for the most suitable property in your price range and don’t be pressured into buying ‘just outside’ of what you feel you can afford.

This indicates a need for credit and detracts from your overall credit score.

4. Avoid standing surety for others’ debt commitments

As far as possible avoid standing surety for others debt commitments as this is considered when raising finance on your side and will affect the amount you qualify for.

5. You salary and credit scoring

Pay your salary into an account monthly to build up a credit score with your bank.

Try not to use everything all the time and run your account on the minimum balance monthly.

This too is an indication that cash flow is tight and extra expenses could be a problem, he says.

5. Don’t overdraw your cheque account

Constant overdrawing of your account shows insufficient cash flow, which could raise the question about how you plan on servicing new debt if you can’t manage what is already there.

6. Open a savings account

Having a savings account is a good thing as it shows there is extra money available every month to use and also indicates a prudent savings habit.

7. Save for a deposit

Try to save up for a deposit of 5 percent (more is always a plus) before shopping for a home, he says.

It is a good indication that there is commitment to the asset and a responsible approach to buying a home.

8. Additional home costs savings

Make allowance for the additional costs of registration and all the fees linked to buying a home.

Depending on the purchase price the fees can be as much as 8 percent of the purchase price and this excludes the deposit on the property.

9. Shop around

It is important to shop around for the most suitable property in your price range and don’t be pressured into buying ‘just outside’ of what you feel you can afford.

Martle explains that whether one is buying an existing property or a new development, the deposit requirements will be determined by the applicant’s individual credit assessment and not only the property they are buying.

Stick to what’s affordable to you.

10. Employment

Being in stable employment and not ‘job hopping’ helps establish credibility and indicates stability.

11. Property location

Make sure the area you are considering is well maintained and an area where the demand to live in is good.

Drive around and look at the other properties in the area. Maintenance and upkeep of their properties is also important when trying to sell again.

Work with reputable agents and agencies. They are successful for a reason.

Do not only look at the home you want to buy, look at the safety aspects of the area, the amenities available, such as shopping centres, schools, hospitals, etc.

Resale must always be a consideration and things like this add value to the area.

Deposit and home loan application requirements

One of the frequently asked question is how much deposit can one expect to pay when applying for a home loan of say a property priced at R500k.

Martle explains that whether one is buying an existing property or a new development, the deposit requirements will be determined by the applicant's individual credit assessment and not only the property they are buying.

Factors that influence deposit requirements include the maintenance and upkeep of the property, supply and demand in the area they are looking to buy into and the would-be buyer’s credit history and profile.

He says once one has gone through all the steps above and feels confident of buying that dream home - it is time to approach the bank for financing.

 If an account is due on the 25th of the month, do not pay the account late as this will affect your credit rating - pay on time always.

Information required, however, varies but the basic requirements include:

- latest proof of income

- copy of ID

- proof of residence

- a completed application form

- an offer to purchase

“This does vary from one applicant to another depending on the individual circumstances.”

Martle points out that while this seems like a simple exercise, no two home loan applications are the same - the factors considered when assessing an application for finance are specific to the applicant.

It is best to get the advice from the specialists in the industry and it is because of this that FNB Home Loans has recognised the fact that buying a property can be an intimidating process.

“From the time one decides to 'shop' until the loan applied for has been approved, can be a stressful period.

“It is because of this that we have introduced a first to the industry in the form of Property Leader.”

He explains that the Property Leader program assists would-be buyers with the buying process upfront by pre-qualifying buyers and removing the uncertainty of ‘how much can I afford’ or ‘I hope they approve the amount I need’

Do not only look at the home you want to buy, look at the safety aspects of the area, the amenities available, such as shopping centres, schools, hospitals, etc.

By going through the property leader program, FNB will issue an upfront certificate giving the applicant peace of mind knowing that the finance is largely secured, albeit subject to conditions such as the valuers’ assessment of the property one decides to buy, he says.

He says the shopping experience once you know that the finance is already largely taken care of, is so much more meaningful.

“We recognise the emotional roller coaster that applicants go through when looking for their dream home and we are able to help ease the load by removing some of the obstacles upfront.”

Over and above the upfront certificate, FNB also offers the applicant a network of recognised area specialists’ - estate agents who can help buyers shop for the house they are looking for.

“We educate would-be buyers about the home buying process to remove any concerns they may have about the financing of the properties.”

The bank also supplies in-depth information about the areas they are looking to purchase into in the form of area reports.

Area reports contain information such as the demographics of the area, average house prices, sizes of the erven, soil conditions, sales that have been registered in the area, points of interest and much more.

These are all available through the Property Leader program designed to assist with the buying and selling process, he adds. – Denise Mhlanga

Link to article on Property24:

http://www.property24.com/articles/tips-on-scoring-home-loan-finance/16118

FNB Property Barometer - Western Cape House Price Index 2nd Quarter 2012 (Source: FNB; Author: Clinton Martle)

Western Cape House Price Index showed further year-on-year growth acceleration in the 2^nd Quarter. The City of Cape Town Metro is believed to be the solid part of the province’s market, and the more affordable segments the key drivers of price growth

The 2nd quarter FNB Western Cape House Price Index showed further year-on-year house price growth acceleration in the province. FNB’s valuers perceive the City of Cape Town Metro to be a stronger residential market than the country areas, and we are of the opinion that the more affordably-priced segments of the market have contributed more to price growth in the region. 

However, a strained global economy, and indicators pointing to a simultaneous Western Cape economic weakening, could imply near term slowing in the Province’s house price growth once more.

The FNB Western Cape House Price Index for the 2nd quarter of 2012 showed a further acceleration in its year-on-year growth rate, from a rate of 7.5% in the previous quarter to 8.7%. This has been the 4th consecutive quarter of year-on-year growth acceleration, according to the latest revised figures.

On a quarter-on-quarter basis, however, the growth rate slowed slightly in the 2nd quarter, from a previous 2.5% to 2.3%, but this remains a very healthy quarter-on-quarter rate.

This price growth is very slightly above the national average year-on-year growth rate of 8.6% for the 2nd quarter.

The recent relatively solid period in house price growth appears to have been driven more by the Full Title segment than the Sectional Title segment. This is believed to be due to the Sectional Title segment perhaps still suffering more heavily from the overhang of a stronger supply of new stock built a few years ago during the boom. The sectional title market also appeared to be a major target of buy-to-let buyers in the boom years, and buy-to-let demand still remains mediocre by comparison to back then.

In the Full Title segment, the Affordable Housing segment is believed to have been a key driver in recent times, boosting the 2 bedroom sub-segment, while the relatively stable established family demand is the driving force behind what appears to be a pretty solid 3 bedroom Full Title market.

By area price bands in the Western Cape, it appears that, as a rule of thumb, the lower priced areas have mildly outperformed the upper end of late, which I guess is still a reflection of the financial pressures that households face, and perhaps, too, the rising costs related to operating homes, i.e. in the form of rates and tariff increases, notably electricity.

In my last week’s note on the Western Cape Estate Agent Survey we discussed a lack of pricing realism amongst sellers, as well as the very significant level of selling in order to downscale due to financial pressure. This should play more into the hands of sellers on the more affordable end of the market, our reason for believing that the lower end should perform slightly better in terms of price growth

The FNB Western Cape Valuers’ Market Strength Index is supportive of the recently accelerating price growth trend, having risen for 3 consecutive quarters. However, at a level of 43.26, which is still below the crucial level of 50, meaning that the supply rating of the valuers is still higher than the aggregate demand rating (see note at end), we should probably anticipate further real house price decline in the short to medium term. By “real price decline” I refer to where house price growth can for lengthy periods be below general price inflation in the economy, usually measured by consumer price inflation. So the market is not yet in a strong position in terms of demand relative to supply, despite the recent relatively good patch.

What the FNB Valuers also suggest to us is that the market balance in the City of Cape Town Metro is healthier than that of the non-metro areas of the province. This is implied in the fact that the Cape Metro Market Strength Index, at 45.58, is higher than the Index for the entire province. This should not be too surprising, as the country areas have been supported by significant getaway property demand, and this non-essential form of property buying has been less of a priority since the financial knock delivered by the 2008/9 recession. The rural Western Cape market does, nevertheless, appear to have been showing some improvement too, but appears to lag the metro market which is driven more strongly by primary residential demand.

Outlook: After a recent good period, we may begin to see some slowing price growth in the region once more. Global economic troubles have been widely reported, and our region is a part of that global economy. So it is not surprising that the Sake24/BoE Provincial Barometers (relating to economic performance), compiled by Economists.co.ca, point to slowing economic growth performance in the major provinces of SA, including the Western Cape.

The Sake24/BoE Western Cape Growth Index has been showing slowing year-on-year growth since around December 2011. I’ve already mentioned that, while still solid, quarter-on-quarter house price growth in the Western Cape was slightly lower in the 2nd quarter. Should economic growth slow, this should be expected to lead house price growth in a similar direction, with the recent lone interest rate cut perhaps proving a partial counter to economic weakness.

An extract from the most recent release of the Sake24/BoE Barometer, earlier in July, reads as follows…. “Together with the chilly Cape weather the Western Cape economy is also cooling down, as is evident from the May Sake24 and BoE Private Clients Western Cape Barometer. But although the barometer's main index contracted 1.6% year-on-year (y/y) in May and average consumers and small business enterprises in the province were becoming more cautious, figures like vehicle sales still show some punch in the provincial economy here and there. Motor sales, for instance, were 11.2% better than in May last year and visits to hotels and restaurants 3.8% up.”

So in short, it seems our province’s economy is not too badly off, but slowing seems to be the order of the day, and housing market normally tracks economic trends.

Note on the FNB Valuers’ Market Strength Index: When an FNB valuer values a property, he/she is required to provide a rating of demand as well as supply for property in the specific area. The demand and supply rating categories are a simple “good (100)”, “average (50)”, and “weak (0)”.  From all of these ratings we compile an aggregate demand and an aggregate supply rating, which are expressed on a scale of 0 to 100. After aggregating the individual demand and supply ratings, we subtract the aggregate supply rating from the demand rating, add 100 to the difference, and divide by 2, so that the FNB Valuers’ Residential Market Strength Index is also depicted on a scale of 0 to 100 with 50 being the point where supply and demand are equal.