Price right and sell soon to avoid much higher holding costs

Even though the inflation rate is down again this month, education, health and transport costs have all risen again this year, and worse is soon to come for homeowners and sellers as Eskom and local authorities implement their annual tariff increases.

“Most of these increases will be well above inflation,” says Keegan Hagan, MD of the UrbanLink real estate group, “and could substantially increase your holding costs – and lower your proceeds – as a home seller if your property is not priced correctly from the start and consequently takes a long time to sell.

“As it is, the latest figures from Numbeo show that the average monthly utility bill for even an 85sqm apartment ranges from around R1600 a month in East London to as much as R2700 a month in Durban, with bills obviously being much higher for larger homes. And municipal property rates in the major metros are set to increase from 1 July by between 4,8% (Johannesburg) and 7,8% (eThekweni), with Cape Town coming in at 5,7%, with steep increases in municipal electricity, water and sanitation costs coming on top of that.”

In Johannesburg, for example, the proposed service tariff increases run at around 11% for electricity, 8% for water and 8% for sanitation while in Cape Town, the increases are expected to be around 12% for electricity, 7% for water and 7% for sanitation. eThekwini has proposed the biggest increases of around 14% for electricity, 15% for water and 13% for sanitation.

However, he says, municipal charges are just one element of the holding cost calculation, which also includes monthly insurance, security and maintenance costs as well as any levies or bond repayments the home seller has to keep paying until the property is transferred to a new owner.

“And it is not unreasonable to estimate that on a property valued at R1m, these costs would total R18 000 to R20 000 a month.”

Meanwhile, says Hagan, it appears unlikely now that the Reserve Bank will lower interest rates until the end of the year at the earliest, thanks to the fact that inflation is taking longer than expected to drop to the 4,5% target rate, and because the Fed in the US is also holding off on rate cuts, which makes the Rand more vulnerable.    

“This means that affordability will continue to be a problem for prospective home buyers, who have faced a cumulative 475 basis point increase in interest rates over the past two years – and that for the foreseeable future, the time it takes to sell a property is unlikely much from the current national average of 76 days, which translates into at least three months’ of holding costs for sellers from the time they list their home for sale until the time it is sold.

“On a house priced at R1m, those costs, including the bond repayments, add up to between R54 000 and R60 000 and will mount up to even more if the property is regarded by potential buyers as being overpriced when it is listed for sale and remains ‘on the shelf’ for several additional months as a result.

“This is why it is absolutely vital for sellers to enlist the help of a knowledgeable and efficient estate agent to help them set a market-related asking price for their home, and then ensure that it receives rapid exposure to the biggest possible audience of potential buyers in order to keep the listing period – and holding costs – to a minimum.”

It is also why it is important, he says, for sellers to be willing to quickly adjust their asking price if the initial response to a listing is lukewarm, and to negotiate if they receive an offer that is lower than their asking price.

“By making a R50 000 price concession on your R1m home, for example, you might well save yourself much more than that in holding costs, and be able to put that money towards the purchase of your own new home, or use it to finance an investment or pay off a debt.”

Looked at another way, says Hagan, every delay in selling your home costs you money and eats into any profit you stand to make on the sale, so it does not make sense to hold out for an asking price that is not being well received by the market. “And with municipal rates and tariffs set for such big increases this year, there is an even greater urgency to sell as quickly as possible and reduce your holding costs.”

Issued by: Urban Link