Home improvement neglect reflects tough times

30 Aug 2011


John Loos, a strategist at FNB Home Loans, said this week that the bank's second-quarter estate agent survey showed there had been a broad decline since early 2004 in the percentage of homeowners undertaking "value-adding upgrades" or "maintaining and making some improvements" to their homes.

Loos added that agents estimated the percentage of homeowners falling into these two categories had fallen from 79.5 percent of total estimated homeowners in early 2004 to 41.5 percent now.

"This implies a major shift by a significant portion of homeowners towards 'lesser forms' of home investment, namely 'fully maintaining with no improvements', 'only attending to basic maintenance' and 'letting homes run down'," he said.

Loos said this propensity to consume could be seen in Reserve Bank data, which showed that saving was so low that households remained in a situation of "net dissaving". This meant that the little gross savings that existed was insufficient to cover the depreciation on fixed assets owned by households.

Estate agents participating in the FNB survey estimated in the second quarter of this year that 3.5 percent of homeowners were making "value-adding" upgrades to their homes, which was the lowest percentage on record and down from 5 percent in the previous quarter.

The percentage of homeowners "maintaining their properties and making some improvements" declined in the same period to 38 percent from 39.5 percent.

The "not improving but still fully maintaining their homes" category rose to 35 percent from 33.5 percent.

The percentage of homeowners "only attending to basic maintenance" increased to 23 percent from 20.5 percent, while those "letting their home get run down" increased to 2 percent from 1.5 percent.

An existing home investment confidence index compiled by FNB Home Loans showed a very slight quarter-on-quarter decline but the low score "remains a far cry" from the level in early 2004.

He said this weak state of existing home fixed investment was reflective of the state of household finances and to a lesser extent of a lack of capital growth prospects for property investors and speculators, who often bought homes to upgrade and sell at a profit.

"During tough economic and financial times, which have been in play since around 2007, households don't only cut back on non-essential expenditures as financial situations weaken, they also defer certain more essential expenditure such as full maintenance on homes or even cars.

"The weak home investment situation has implications for banks. In the current environment, certain properties prove to be poor security with which to back a home loan, partly due to a lack of overall market price growth (and sometimes property price declines), but also due to poor maintenance of properties," Loos said.

Business Report