More property owners upgrade and improve their homes

An increasing percentage of home owners are upgrading and improving their homes, according to an FNB report released yesterday.

This trend is attributed to the high cost of selling and buying a new home and the inability of homeowners to afford to buy a new house.

John Loos, a household and property sector strategist at FNB, said there was a further improvement in estate agent perceptions of home maintenance and upgrades in the third quarter to continue a broad improving trend that dated back to late 2012.

Loos said the estimated percentage of homeowners doing value adding upgrades rose to 26 percent in the third quarter of this year from only 3 percent in the first half of 2013. This was lower than the 43 percent achieved in 2004, but is the highest estimated percentage since the second quarter of 2007.

Loos said 78 percent of homeowners were undertaking home improvements for their own use while 12 percent were doing so because they "can't afford to buy elsewhere".

He said FNB's estate agent survey still pointed to limited speculative building behaviour at 9.5 percent of total home improvements compared to 24.5 percent speculative activity in early 2006.

Samuel Seeff, the chairman of Seeff Properties, said this week homeowners with homes in the R5 million to R7m and above price category were reluctant to sell their properties and would rather upgrade them because of the high transactions costs involved in selling and buying a new home.

Seeff said the legislated transaction costs were too high when transfer costs, transfer were factored into any transaction. He said sellers in some instances had to pay up to 20 percent of the value of the purchase price just in costs.

Seeff said the recent increase in transfer duty to 11 percent on transactions above R2.25m was a factor in driving sellers to rethink whether they wanted to be selling their homes.

While the transfer duty increase from 8 percent to 11 percent may seem small, it translated to anything upwards of 20 percent to 40 percent and an additional R70 500 to R670 500 in some instances, he said.

Seeff said the increase in transfer duty was counter productive. "The government gets 3 percent more on every transaction above a certain level, but if one transaction doesn't go ahead, it negates 10 or 12 transactions and the increased money government is trying to generate," he said.

Loos said estate agents still perceived only limited downward movement in the "only attending to basic maintenance" category, which was a positive sign. He said an increase in this category could signal that the agents may be starting to perceive rising financial stress in their areas, but there is not any sign of such deterioration yet.

Loos said it was significant that agents perceived further increases in "value adding upgrades", the top level of home investment, and "maintaining and making some improvements" category. This kept the overall home investment confidence indicator rising.

However, Loos said near term trends in home investment would be interesting to watch given the ongoing weak levels of economic growth and consumer confidence. "At present, the risk of a domestic recession is significant," he said.

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