You remember when we talked about 2020?
Hindsight is 20/20………
Space station 2020……..
I can remember saying that I would be 65 in 2020. When you’re in your Twenty’s that’s a seriously long time.
Well, it’s almost upon us and we’re still here. But in the meantime, 2017 has its own interesting features that may unfold. Last year, Clem Suntner, in whose shadow I do not even stand but who I read every time I see something, wrote about 10 flags to watch in 2016. He defined Flags as trends that change the game.
– The oil price
– Global temperatures, floods and droughts
– The US Federal Reserve Bank
– The Chinese economy
– The war in Syria
– Vladimir Putin
– The American presidential election
– A global pandemic
– The municipal elections in South Africa
Let me attempt to sum this up for you with 2020 hindsight. The oil price has turned the corner, we had a record-breaking drought, the FED is raising rates while the world has accommodated the Chinese growth rates, the war in Syria has intensified tragically, Putin seems friendly with Donald who will be president of the United States of America, the Vika virus has been halted and the SA political coalitions are holding in the first 150 days. But wasn’t Clem right on the button! I have been quite facetious to summarise his Flags so tritely; much more can be said as many of these trends have indeed re-shaped the game. By the way, with 2020 hindsight, Clem missed Brexit.
I would like to position a few things with you for 2017 that could impact our property market. Call them some things to watch:
Global interest rates
My sense is that rates across the globe will begin to rise. It would seem that there will be carefully orchestrated interventions by the central bankers to ensure that economic growth is not harmed but it would appear that the low-rate [read: close to zero] party is over. Any global growth in existence is fragile at best and brought about by rate and money easing of historic levels after sub-Prime. The hangover will need to be nursed with tiny doses of interest rates and absolute economic circumspection around the USA, Europe and other trade blocs.
In SA we will be part of this rate rise but I would not expect more that 0.5%. I must say that I have no economic base for this projection but my sense is that in an Elective year with green shoots of GDP growth, we have already pre-emptively raised rates and therefore will need little extra to hold inflation in trim.
SA growth, as I mentioned in my first blog in December, seems set to rise. If Minister Gordhan is right at 1.7% we will not recognise ourselves for good news. But, as I also indicated, I would take the ABSA and Standard Bank projections at circa 1% with pleasure. You won’t need to watch this trend, you will just feel the lift-off of economic activity and doses of better news. Of all the things we need, reducing of Unemployment would be the most welcome consequence.
The FED vs Trump
This one is core to much of what I sense for 2017 economically. Trump shocked the world. For some the clown was in charge of the circus but for others, America would be Great Again. The stock market has heralded his policies for growth and tax reduction which remain vague, repatriation [if I may term it that?] of industry and his willingness to fund defence, infrastructure and the like. The FED, following the long-accepted <5% Unemployment Rule has raised rates but has also made it clear that it envisages 3 X 0.25% [probably] rate increases in 2017. Seemingly now, this stance which is so contrary to the past 9 years, is to curtail the Inflation damage that may be caused by Trump’s fiscal gusto. Time will tell who wins what may become ugly disagreement and simply muddy the waters of global economic stability.
The EU break-up
With tongue-in-cheek, I made the point that Clem missed Brexit. But, what we all missed was the EU coming under pressure as Italy joined the referendum chorus together with the Scandinavian countries. The former is slightly bankrupt, but the latter are very stable and significant. All are staring down the Immigration barrel and with as yet unmentioned Germany, taking the Christmas brunt of that concern. If you listen to Nigel Farage, ex-UKIP leader, the end of EU is nigh. However, the show’s not over yet and much needs to happen, especially with Germany and France standing firm, to dislodge the most powerful economic union on Planet Earth.
The relationship between Britain and the USA, Russia and the USA and the USA and China will all be factors to watch as the EU story unfolds.
Oil and Nuclear
I have placed these two together only because they are Energy related. The Oil price is on the rise as OPEC has finally garnered the support of the 10 non-Opec oil producers and agreed that production will be cut back in order to increase the demand and therefore the price. So from $32 to $56 we go. Locally, we can expect up to 50c increase in Petrol and 40c increase in Diesel in January. For the world, excluding America which will have a surplus of Oil at current prices, this means Inflation could rise. But for us there could be a precarious balance between a weakening Rand as and when the US$ strengthens and the rising cost of fuel.
Then there is our question of Nuclear. The final properties are being bought at Thyspunt, between Oyster Bay and Cape St Francis, to secure the area around a nuclear site which was identified by Eskom about 30 years ago. The RFP has been issued. On the other side, Kusele is coming on stream at twice its original cost and with Medupe 6 fired up, we have a welcome excess of electricity which we are able to sell to neighbouring countries. The R1tn for Nuclear will prove more obscene if it gets the go-ahead but this year could be interesting in this race to power.
The Elective Conference
Talking about a race to power, the Elective Conference [EC] will have taken place by this time next year. Dhlamini-Zuma, Ramaphosa and Mkhize seem to be the frontrunners and the knives are already out. One knife that hangs over proceedings is the Sword of Damacles, the threat of good opposition politics in coalition power actually succeeding in major metropoles. The ANC must be aware that good government by the People, for the People could in fact unseat their majority in 2019. As unthinkable as that may be, there could be a palace revolution of sorts at the EC which turns the tide of ANC-led government. It seems impossible, but watch this space in 2017.
Volatility and the Upside
There is no doubt that as much as I can posit the insights above, nobody really knows what will happen. You need to get used to volatility in every sphere of life; it is here to stay. [Remember we survived the Chinese stock market collapse one year ago, didn’t we?] The stock market will certainly reflect volitility in see-saw activity but, I believe, will show an upward trend overall compared to flat-lining this year. In the States, an interest-led upturn will be replaced by an earnings-led market and some speak very bluntly that the stock markets are over-heated at near-20000 levels.
In SA we will have another stormy year in politics starting with speculation around the Workers Association Union civil trial in which Thebe Maswabi has cited President Zuma in the initiating of a “fake union”.
What I do sense, against all the naysayers, is that property will be better in 2017. What we need to understand is the fundamental shift from standalone housing in favour of small apartment blocks and the continued demand for walled estates. Older homes on large plots are not the order of the day but ‘complexes’ remain popular. In the Western Cape, land included, it would seem that R30000/m2has become the going rate for these good address small homes. If I am right about the interest rate and it remains flat or nearly stable and the growth rate picks up, we could be in for a better year in property.
Whilst this blog is loaded with the future, we at Homeloan Junction are driven to continuously live in the present when it comes to service and value. Our customers deserve nothing less and as much as the future may be somewhat unpredictable, we intend to live up to our reputation as ‘stayers’ who work hard to achieve our goals. The banks have acknowledged our prowess and our success has been recognised a number of times.
May 2017 be Your year. May it be prosperous and worthwhile. May your dreams be worked out with a big dose of optimism and enthusiasm. May your hard work at relationships pay off and set the scene for honest, successful business dealings. Along the way, laugh more; it is truly medicine to the soul. As we would say in Afrikaans, “Ons gun dit aan jou”.
Yours in Property