Sellers are still unrealistic

Despite the slump in the property market since 2007, asking prices remain considerably higher than what houses are sold for.

In fact, about 87% of people are selling for less than their asking price. In 2004, only about 33% of people were not getting what they set out for .

Property economist Francois Viruly says the rule of thumb in any industry is that prices don't fall as quickly as they rise.

"It's important to remember the broader economics of the situation. Most buyers and sellers thought the down part of the property price cycle would be shorter than it has been. So they held onto their prices," he says.

"Sellers in both the residential and commercial property space thought by 2010 the market would be fine. However, the down part of the cycle [lasted longer] and now suddenly sellers are sitting with a property on the market for 200 days or more. Eventually, asking prices will have to fall."

Viruly says sellers are aiming at least 15% too high. "The difference between asking and selling prices is beginning to narrow, to maybe 8% at the moment. A readjustment must take place, and I think market prices are on the decline, but not at the same rate across South Africa.

"We've seen a bigger percentage fall in Cape Town than in Johannesburg, for example. The Cape Town market tends to be more volatile - it rises and falls faster. Different sectors also behave differently, with buy-to-let sellers under a lot more pressure than the primary residence market.

"People are under financial pressure. There are different dynamics that come from oversupply or a lack of demand. Oversupply is relatively easy to fix, but a lack of demand is not. I don't see a significant improvement for the rest of 2011. The longer the downturn, the more the asking and selling prices will begin to meet each other. Once that happens, I think we will see more transactions at the lower prices. The number of transactions - related to price movements - will probably turn around over the next six months."

FNB Home Loans property strategist John Loos says the current situation of houses sitting on the market for nearly four months shows that prices are out of line with reality.

"That's too long. The FNB estate agent survey estimated 15 weeks and one day as an average for properties on the market, along with as many as 87% of sellers having to ultimately drop their asking price. This indicates a still generally unrealistic price level. Two months would appear to be a benchmark for a realistically priced market, judging by what it was back when it was healthy. An adjustment must happen, not only in nominal terms, but in real terms. There has been a real decline of about 15% in property values, and I think there is a nominal house price decline to come next year, despite an obvious resistance to lower prices from sellers.

"Also, I do expect a double dip. The adjustment is the result of weakness, and it will remain like this for a couple of years."

Loos says that, according to his figures, the average drop from asking price to selling price is 10% to 12%. "It's difficult to put a finger on the exact reason - some of the time, sellers don't want to see the value of their primary asset take a knock."

He is not optimistic about transaction volumes picking up just yet. "Tough times will linger, and lower prices may not drive higher volumes. I think we might have to wait years for that. It will certainly contribute, but I expect that contribution to be offset by negative economic factors."