Township property market dynamics by Lynette Nicholson

(Comment) JOHANNESBURG (February 03) - Estate agents are generally restricted by stock shortages in townships and have to revert to alternative methods of securing stock.

Unlike their counterparts in the traditional white suburbs where the client usually contacts the estate agent to assist him in selling his property, township estate agents have to “find” their clients.

A recent survey of township estate agents (mainly operating in Soweto) commissioned by First National Bank (FNB) revealed that there are some very different dynamics when comparing the township and traditional white suburb property markets.

Sourcing property stock in the townships

Most often, estate agents source their business by:

* Using “knock and drops” – i.e. distribution of pamphlets in mailboxes asking potential clients to contact the estate agent if they are thinking of selling their home.
* Estate agents walking from door to door offering their expertise in selling property.
* Estate agents look for properties that have evidence of renovation (for example, recently painted, additions, new gates, etc) and approach these owners to enquire about their intention to sell.
* Offering home owners free valuations on their property.
* Referrals and word of mouth are other ways of sourcing properties that these estate agents rely on quite heavily.

In addition, show houses don’t happen. This is mainly due to security concerns and protecting the privacy of the seller. For the same reasons, “For Sale” signs are not commonplace.

So, estate agents revert to driving the potential buyer around to view a range of properties that fit the buyers’ needs. Hence, considerable time and cost on the estate agents part is involved in securing a sale. To this end, it is important that potential buyers are vetted upfront in the process so that the estate agent ensures that they limit their efforts to “good” clients.

Determining the value of township property

Generally, the estate agents operating in townships agree that location is the key in determining property prices. In Soweto, for instance, suburbs such as Diepkloof Extension and Orlando, that are closer to the Johannesburg CBD, have seen greater price growth than those further away. Property in new developments, which are generally located far out, are often not sought after due to the distance that the owner would need to travel to work. Areas close to commuting routes are also more popular than those that are further away.

With location, the size of the house, the quality of the building work and the extent to which renovations have been done, all determine the value of a property.

Estate agents consider the following types of renovations to be the most important in adding value to a home:

* Installation of aluminium windows
* Re-plastering and re-painting
* Making improvements to flooring, particularly tiling of bathrooms
* Adding a garage
* Putting up walls around the property and installing electric gates
* Paving outside areas
* “De-cluttering” of the living and outside areas – i.e. neatness

Proximity to schools and shopping centres is also a factor affecting desirability of property and hence its value. Safety issues are paramount and properties with good security will also fetch a higher price. Finally, having peace and tranquility is also valued by some to be an important component of the appeal of a property.

The Internet is an important source of potential property buyers

Estate agents consider affordability to be the major challenge facing the township property market and given the effort that they need to put in to secure a sale, most estate agents prefer to qualify their potential client upfront. This eliminates any wasted time and cost for the estate agent.

One of the ways of advertising a property for sale is to use the internet. This may be the agency’s own website or a multi listing site. The majority of agents prefer to deal with potential buyers that contact them via this medium as they believe that the internet acts as a type of “screening” mechanism for them. In their experience, estate agents claim that internet sourced potential buyers are more likely to be more sophisticated than the walk-in buyer. The internet sourced buyer probably earns more, and estate agents have found that there is a higher percentage of these buyers that qualify for a home loan than potential buyers coming from any other source.

By Lynette Nicholson
Research Manager, First National Bank Home Loans