PROPERTY MARKET: WHERE ARE WE?

Okay, just before you think I have the answer to my question, here are two extracts from two leading banks as of June 2018:

Bank#1: “Therefore, the signs are increasingly pointing to an even slower average house price growth year in 2018, than in 2017, and possibly the 4th consecutive year of house price growth slow down, despite recent mild growth acceleration.”

Bank#2: “We still see 2018 house prices stronger than in 2017 due to the turnaround in business and consumer sentiment as well as gradually easing credit conditions.”

So the answer to my question is simple, “I don’t know!” OR, “Eish!”

Of course, one should be grateful for the freedom of the Press and the competition between the banks. Either, or both, would allow for such disparate views between the banks and no doubt, economic models and sentiments have been incorporated in these views.

To the latter point, B#1 has a more jaundiced view of the future than B#2. B#2 continued to say, “We are, however, slightly more cautious in the short-term but remain convinced about longer-term improvements. We maintain our view that building and purchasing activity, relatively subdued in the last year, will benefit from the upswing in business and consumer sentiment. Indeed, data already indicates signs of improvement, with year-to-date to April volumes of building plans passed rising 18.8% above their 2017 levels in the same period.”

Readers of this blog know my views on Perspective. I’m not humanist in these views, but I do contend that a positive perspective has a far better chance of positive results than a negative one. So, if there were a vote, this time I’d vote for Bank#2. In fact, really little difference exists between the banks’ reports on the House Price Index other than their statistical methodology creating slightly differing percentages. Here are the relevant extracts:

Bank#1: “On a year-on-year basis, the B#1 House Price Index’s growth rate continued to accelerate mildly in June 2018, reaching 4.1%, up from a revised 3.9% in May, and the 4th consecutive month of growth acceleration since the 2.9% low point reached in February 2018.

In real terms, however, when adjusting for CPI (Consumer Price Index) inflation, house prices remain in decline. As at May 2018 (June CPI not yet available), real house prices declined year-on-year by -0.5%, with CPI inflation at 4.4% in that month and house price growth at 3.9%.”

Bank#1 has this to say by way of explanation, “We believe this recent mild acceleration in house price growth to be the lagged impact of that brief sentiment improvement in the country early in 2018 on the back of the major political leadership changes in the country, notably a change in President. That sentiment improvement led to a noticeable 1st quarter increase in residential market activity and demand and this has arguably fed through into price growth of late.”

Bank#2: “B#2’s HPI has retreated further, to 4.4% y/y in June, from 4.9% in May (revised from 4.8% y/y), dragging year-to-date average annual growth to 4.9% – virtually flat from the annual average growth of 4.7% in 2017.” For the sake of comparison, B#2’s CPI in their report is 4.2% and this results in a 0.2% real growth in house prices for year-on-year, June 2018.

Like any good economist, B#2 preface any possible over-positivity with this comment, “Much will depend on how much sentiment translates into investment and, ultimately, higher employment levels.”

Two major banks assessing the same data and coming up with very similar results but with different outlooks.

Let’s just analyse B#1’s comment on the lag effect of good news, termed, “that brief sentiment improvement”. Essentially, CR’s election to President caused such a stir that housing activity lifted and estate agents were busier and sellers achieved their prices and banks lent buyers the money. I fully agree with B#1’s sense, though I imagine, the first quarter is generally better as we all return from leave and transfer to new job opportunities etc. This fact makes you think though, and I’ll close on a possible scenario allied to this. In the meantime, turning to B#2, their more positive perspective is that CR will, in fact, be able to lift economic output and thus sustain “Investment and, ultimately, higher employment levels.”

If I look at his successes in Saudi Arabia and $20bn being invested in Energy and Trade, and many of the other initiatives that his government has achieved, I sense that he could make a difference. And of a truth, probably nothing could be worse than the captured state we were in before his election. The issue, given the incredibly high stakes economically, is “how much better” rather than “whether better”? These points bring me to a close. To put you out of your misery, the banks are FNB and Standard, respectively. On the lighter side and to Standard’s kudos, they mention, “We expect a gradual easing of credit standards this year and next, alongside moderately improving consumer affordability matrices.” “Yes pleez!” I hear you All Cry.

Soberly though, the question posed is: Where are we? The writer’s view is simply that we are in better shape than we would have been even though the house price growth is marginal in nominal or real terms. The fact that it is anywhere near positive in real terms, is a tribute to Inflation management by the SARB’s MPC. The recent holding of the interest rate in the face of inflationary pressures from the Rand and Oil, and backed by Standard Bank’s view that “the SARB is likely to keep interest rates unchanged over the next 12 months”, is great news. But the question remains as to what would recover that sentiment that “led to a noticeable 1st quarter increase in residential market activity and demand” and cause it to be maintained?

I have no research department behind me, but I put to you the following: To sustain an encouraging level of housing activity and price rises, South Africa needs 2%-plus growth for 2 years after an initial pick-up period of 6 months. In essence, it is my view that we need Ramanomics and not just Ramaphoria to sustain a higher level of confidence and property economics. I think we have a shot at it and Lesetja Kganyago, the SARB Governor, projects 2% economic growth in 2020 off 1.7 – 1.9% growth in 2019. Now I trust, that’s got you thinking!

Bottomline, we remain hopeful.

Yours in Property.

SOMETHING DIFFERENT

I called a friend of mine in Sydney for his birthday and found myself in the inevitable conversation about property. “What’s happening to property in Sydney?” was the question. I almost heard, “Eish!” but seeing he speaks Australian now, it was more along the lines of, “Shew! Bad…Mate” We spoke about Cape Town being a proxy for Sydney – high performance prices over a long period of time but now tailing off quite rapidly.

Then my wife showed me an article about Bo-Kaap, those beautiful painted houses in which the oldest Muslim community in the country live. In reading it, I decided to title this blog, Something Different. You see, in this country of ours there are always pro’s and con’s, swings and roundabouts, and contradictions. With protests again in Hermanus, it feels like we’re always on the edge and never quite sure of what is going to happen.

But you know that! You’re in the property business

Coming from the Cape[town]etc website, the following extract:
“Long standing local residents of the Bo-Kaap are clamouring to hold onto their homes as property rates increase and investment markets turn on the heat in order to obtain their houses.
Bo-Kapp is nestled in the corner of the City Bowl and offers an authentic Cape Malay cultural experience right in the city centre – it is safe to say that Cape Town would not be the same without this ironically vibrant neighbourhood.

Well-known for its rich history and culture, Bo-Kaap is a place where many residents inherited their homes.  With recent developments along the area, Bo-Kaap is becoming prime real-estate and international investors are bidding to obtain property or land in the district. Property has obtained a higher value than ever before, causing property rates to increase rapidly. Locals are unable to keep up with the increasing property rates as their wages account for the bare minimum. Combined with the increasing gentrification and opposing protests, residents fear losing their homes along with their heritage as Bo-Kaap is one of the oldest Muslim communities in the country.

International investors are focused on the property value and numbers. Many buyers are interested in purchasing the house, flipping it and selling it to the highest bidder. A lifelong resident, Shamil Jassiem shares his grievances with GroundUp, ““Investors are not interested in you and your history and your culture. All they want to do is buy the houses, renovate them and sell them for more a year later,” In a world where we are increasingly alert about strangers, the Bo-Kaap offers a sense of community that echoes the principle of ‘ubuntu’ – where residents can rely on one another for a helping hand. “I will never leave this place because everybody knows everybody and it’s a safe place to stay” says resident Faiza Larney. At the age of 68-years and retired, residents such as Larney are having to pay property rates that amount to R 6000.00. Larney’s only source of income is her pension which amounts to R4300 both government and private pension are included in this. Property rates do not include water, electricity, sanitation and refuse collection – meaning that residents must fork out more money that they do not have. Many residents are currently in arrears with their rent causing the option of selling tempting.

Properties have risen in value by 11 – 12% annually over two decades with property being purchased in 1999 at R200 000, now valued at R1.3 million. The overall increase in value can be attributed to the method of marketing, geographical location and beneficial investment output. Chairperson of Bo-Kaap Civic Ratepayers association Osman Shaboodien shared, “Property sales are spurned by marketing. Bo-Kaap for instance is sold as a quaint, historical place with cobblestone streets and old Dutch houses.” The people of Bo-Kaap are now faced with a daunting situation – to sell their house, heritage, history and culture for financial comfort or turn away buyers and work more than one job to cover the basic costs of staying in their homes.”

We have been talking about the Cape Town market slowing down but here pops up an article that investors are still hunting for and finding value. We had a cooking lesson in one of these houses for a friend’s 60th birthday, and I can tell you the Bo-Kaap is beautiful, friendly and quaint. Not a reason in the world that if these little homes achieve R1.3m in the market that you would not want to renovate a few and rent them to young professionals who work in the City Bowl. Big returns at that price, so I can understand the problem and even, the dilemma, residents may have.

Now, some interesting news from Sydney. Remember in Australia, homes are not sold by agents but rather auctioned. As a guideline, 90% are auctioned there as opposed to 90%+ here that are sold by agents. That explained, this weekly report I received from my friend, talks about Clearances – this is the term used for “sales on auction” over a weekend and imply that if there were a 100 houses listed and 92 are sold on auction, then the Clearance would be 92%. This example is exactly, according to my friend, the Clearance figure 18 months ago. In other words, 92 out of 100 auctions achieved a house sale; imagine that demand!

But times have changed and last night’s [10 July 2018] Clearance Rate was 53.53% on 673 Total Scheduled Auctions in New South Wales, the province in which Sydney resides. In other words, Australian auctioneers [read: estate agents] have experienced a 92-53 = 39% decrease in sales and I bet, the house prices have also declined concomitantly. That, in 18 months. I’m not sure that you have experienced anything like that anywhere in South Africa; I certainly hope not! Mind you, I was also comparing house prices with my friend and in that regard, I have another friend who has just sold in Hermanus within walking distance to the beach for R12m. He has purchased a similar sized house within similar access of the beach and he paid R35m ie A$3.5m. That’s three times the price in Rands. And, just by the way, I see the interest rate advertised in the report, is 3.69% variable. That’s three times less than our rates.

Moving on to house price increases, the report is also quite insightful:

Demand for all property across Australia has increased 5.2% year-on-year with houses increasing at 7.8% but apartments decreasing at -1.2%. The report continues, “The housing market slowdown in Melbourne and Sydney is dominating headlines, but the reality is the market is highly divergent. On one hand, Sydney prices have declined by 7.4% year-on-year, while on the other extreme, Hobart continues to surge, with prices rising by 16.1%.

Sydney is experiencing the biggest drawbacks. Melbourne is still holding. Pricing is up year-on-year and although activity among offshore buyers is cooling off, foreign investors are still actively looking for properties in the city. Softening market conditions are now starting to take hold and, surprisingly, given the widespread concern about apartment over-supply, in relative terms, it is housing demand that has weakened more. While Melbourne and Sydney slow, demand is creeping up in Perth. Although prices are still down year-on-year, the increase in demand is now the third highest in Australia, after Hobart and Canberra. Brisbane is experiencing similar increases, also suggesting that the tough times are over in the city, which is consistent with recent jobs growth numbers.”

And, final thought about the factors causing much of this reduction:

“Generally, across Australia, the premium market is holding up better than more affordable locations, however it is too simplistic to say that it’s the only market doing well. The strongest suburb over the past 12 months was Tamarama in Sydney’s east, which saw a median price increase of more than $1 million. [That’s R10m! In one year!!] Looking ahead, the housing market in Australia is under a lot of pressure, which will cap price growth everywhere. The reasons for this are varied.

Fewer offshore investors: Last year, new taxes were implemented in many capital cities and Foreign Investment Review Board applications dropped dramatically. Foreign buyers are still interested in Australian property (we continue to see growing numbers of Asian property seekers looking in all capital cities, except Sydney and Adelaide), however they are not transacting. While the new taxes are partly to blame, a change in sentiment has also occurred. There is also less development taking place (foreign buyers are restricted to buying new properties), as well as fewer Chinese developers. Property is now on the restricted list in China and more often than not, Chinese developers tend to sell back to their home market.

Fewer local investors: Investor lending has dropped by 15% over the past 12 months and sentiment of local investors has changed. A lot of this has to do with problems related to getting finance (far more restrictive and more expensive), but many of the incentives that investors got on off-the-plan developments, for example, are no longer available. The beginning of price declines is only worsening the situation.

Financial Services Royal Commission: This is currently underway and although it won’t be completed until late this year, banks are already starting to restrict lending on the back of what they expect to happen. The biggest impact right now is greater scrutiny of potential borrowers’ spending behaviour. [ed. I’ve heard that somewhere before ] Previously, banks mostly accepted what people said they spent at face value, however they now require more proof. Interest-only loans have also been restricted and many investors had relied on these. It is likely even greater restrictions will be put in place over the next 12 months.

Mortgage rates: Australian rates aren’t budging but US rates are increasing. Australian banks raise about 20% of funds that they lend to Australians from wholesale markets, so this is impacting mortgage rates already. Add in an interest rate rise and we will see less money being borrowed, as well as lower levels of interest in buying a house.

Change of government: A federal election will happen in the next 12 months and changes to negative gearing have been flagged by the ALP. This would have a big impact on the market, with an expected decrease in prices of about 10% in Sydney and Melbourne, according to Riskwise and Wargent Consulting. If markets are already weak and dropping, this could have a dramatic impact on investment levels and, subsequently, prices.

The likely outcome over the next six months is continued moderation of pricing in Melbourne and Sydney, while our other markets will hold up a lot better. Predictions that median prices will decline by about 10% seems a bit light in Sydney, given that prices have already dropped by more than 7%. Melbourne is likely to see declines this year, however, at this stage, it is unlikely to be as extreme as in Sydney, particularly given that on a year-on-year basis, we are still seeing a very slight increase.

On the positive side, the Australian economy is very slowly heading back to growth mode and as the development pipeline has slowed dramatically, particularly for apartments, this means less property will be available to buy. These will provide buffers to negative changes in the market, something that was not occurring the last time we saw big declines post the Global Financial Crisis.”

Just, by the way, the median [read: most often achieved] price in Sydney is A$925000 or, wait for it, R9.25m. No wonder, even at 3% interest, the market is adjusting.

Something Different, indeed! And when you read the reasons for the changes, if you closed your eyes, there wouldn’t be too far a difference to our reasons. Government change struck me and are we expecting that quite soon. However, banks tightening lending and the Financial Services Royal Commission [What a mouthful; sounds so British! Just read: National Credit Regulator] automatically adjusting spending patterns of applicants to avoid over-lending, is pap and wors in our mortgage space. The Chinese influence is very interesting and simply resulted from mega-rich Chinese buying practically whole developments and then loading unit prices by A$100000 only to sell to the locals for enormous gain. The Aussie government stressed out [that’s an election issue in the modern economies] and got the Chinese government to stop approving offshore monies going into such ventures.

In little ol’ SA we have our problems. But so far, we have held our own. The list of headwinds would be similar and the interest rate may rise even this year. I stand by my prediction that SARB will hold the rates fearful of curtailing growth and therefor, employment. Time will tell.

Hope you enjoyed Something Different. Good to see that other countries are struggling and that we are not unique. At Homeloan Junction we plough ahead. No time to put your head in the sand, but rather to Stand Tall with positive self-expectation. We have a proud history and we intend to keep our yesterdays on the same trajectory.

Yours in Property.

THE WINDOW TO HOUSE PRICES

Just an opening comment about Ramaphoria. How cute we are as a nation to adopt words like Rainbow Nation, Zumanomics, and, our latest euphemism, Ramaphoria. When we give it a name, we somehow settle back into our armchairs and watch Chicago Fire. Without a name, we stress. Ramaphoria was never going to last. So, we should not make it “the next big thing” to complain about. I have asked a friend to correct me whenever I moan about the country and my reason is simply this, if you think that Ramaphosa is moving too slowly and we should be arresting more people, getting more money back and recapitalizing the SOE’s faster, never forget you could have had Mrs Zuma and a horrible catastrophe as Eskom breached the fiscal cliff, the Rand collapsed [I mean COLLAPSED] and every scrap of international investment left our shores.

Listening to this morning’s Talk Show, Cas Coovadia of the Bank Association of South Africa, was speaking about the willingness of the Banks to support a restructure of the SOE’s. “They have been robbed and now we’re expected to risk our savings to bail them out”, one Caller lamented – but just imagine if the President didn’t have the ears and brains of the bankers and other relevant parties to turn this mess around. Yes the ANC allowed Zuma to run wild but at least, some self-correction is creeping back under very difficult circumstances for those willing to be tasked with the unwind of State Capture. It was all too frightening to consider but thank Goodness the Good Guys won and we have a chance at Hope and Reconciliation again. It could have been worse, MUCH WORSE! Don’t lose Hope and when you have it, Encourage Others – you could see it as your National Duty. You can never build anything focused inwards; it’s outwards or bust. Look Up, Look Out and make yourself, drag yourself if need be, to be part of the solution.

I often refer to John Loos and I like the manner in which FNB brings the estate agents into the picture. I know you read the Property Barometers so forgive me for extracting from them, but they do allow me to make some points which I hope you find valid. In this blog, I refer to three latest Barometers……

Early signs of the positive national sentiment shift impacting on national house price trends

This was the headline of May’s Property Barometer and it continued to say:

“May 2018 saw the FNB House Price Index growing by a faster 4.6%, year-on-year, up from the previous month’s 3.8% in April, and from a February 2018 low of 2.8%. This 3rd consecutive month of house price growth acceleration is an early sign that significantly improved sentiment in South Africa early in 2018 is beginning to impact positively on the housing market and house price growth.”

So there we have it, SA Inc set off like a steam train and house prices were rising significantly. But was it realistic and sustainable? Realistic? Yes, but simply because we all took a huge breath of fresh commercial and confidence air from the ANC December conference and we were willing to pay the price asked by Sellers. Sustainable? No. You can’t turnaround the wounds of State Capture in three months. To think you can is puerile.

But we continue: “Strengthening was witnessed in our own FNB Estate Agent Survey, with agents reporting a significant jump in residential market activity in the February 2018 quarterly survey. Further support for the perception of a strengthened Housing Market in the 1st quarter of 2018 was provided by a shortening in the estimated average time of homes on the market prior to sale, from 17 weeks and 2 days in the final quarter of 2017 to 14 weeks and 1 day, according to the Estate Agent Survey.” 

In other words, our “window to house prices” was telling us we were motivated to buy and pay the price. In conclusion, FNB says, “2018 is expected to be stronger on the back of a further small interest rate reduction as well as leading indicators having pointed towards further strengthening in economic growth as we’ve moved into 2018. We thus expect average house price growth to be in the 5-6% range for 2018 as a whole, which would imply some mildly positive real house price growth given the FNB CPI inflation forecast of 4.9% for the year.”

I agree with John, we could see a positive house price growth this year. The reason is that despite some recent news around Inflation and interest rates and the usual politicking, we will have a better year than last year. Surely, it can only be better!?

Now we return to our “window”. I have a high regard for the estate agents. In our economy and property market, they are the front line of property sales. They have and need the skin of a rhino and the hearts of a saint in order to traverse the minefield of Buyer and Seller negotiations. On their behalf, FNB proceeds to say that: “they perceive the sentiment “spike” from the early-2018 political leadership changes to have passed through, and it is back to “business as usual” in a weak economy. On a national average basis, the 2nd quarter 2018 FNB Estate Agent Survey showed a noticeable lengthening in the average time of homes on the market prior to sales, pointing to a renewed housing market weakening in terms of housing demand relative to supply. This is reflective of “Ramaphoria” tapering off.”

I accept that they are right. Humans like us, they could have felt more enthusiastic going into 2018, but that aside, the numbers are telling and don’t lie. The “average time of homes on the market lengthen noticeably, from 14 weeks and 1 day in the prior quarter to 16 weeks and 4 days, reflecting improved housing demand relative to supply in the 2nd quarter’ and, “from a previous quarter’s 91%, the percentage of sellers being required to drop their asking price to make the sale also increased to 96% in the 2nd quarter of 2018” and by an average drop in the Sellers’ asking price from “-8.2% in the prior quarter to -9.2%” in Q2:2018.

You can read the rest of these Barometers, but to sum up, the estate agents are telling us that there is not a stock problem generally and that negotiations are hotting up and Offers being accepted at a slightly lower price. It would be foolish not to accept that this status quo does not mean a slowdown in the housing market. 

But really, despite the news mentioned above around pre-election [I really hope] politics, Inflation and the possible rise in interest rates to protect the inflation target bands and the Rand [read: your petrol price], we are doing well under the circumstances. I wish I could wave a wand and “talk it up”; I cannot. But going back to my opening comments, we have no idea how bad things were and how terrible they could have been for every one of us; especially the Poor and the Unemployed.

Telling people that things are not as bad as they could have been always feels like a cheap shot from me. But, from my heart and the commercial heart of Homeloan Junction, we have the opportunity to rebuild and to restore, opportunities for jobs, housing and things that matter to common people like us. Do I sink back in my comforter unaffected and at peace? No, not really. But, on the other hand, I can see that once again SA has dodged the bullet – may I say, miraculously?  – and we have leadership that is fighting our way back against the odds. Whilst my hope does not ultimately rest there, it is a damn side better than anything I could have foreseen.

Like success, hope breeds hope. Have it and share it; it’ll be good for You.

Yours in Property.

THE CONFIDENCE ELIXER

It is not profound to say that good news is better than bad news but, my goodness, the statement in property that there is some good news is very profound. The reason, as we’ve discussed many times, is that Confidence is the primary yeast of mortgage book building and mortgages mean house sales. In addition, in this blog I have nailed my colours to the mast and said that Gauteng is on the verge of increasing house price movements. Good news, obviously followed up by business activity, will change the shape of Gauteng house prices. The sleeping giant will arise in my humble opinion and, in turn, Cape Town will slumber for a season. In the former, house prices are too low to represent value and in the latter too high to represent value. Put incredibly simply, selling a house in Joburg and trying to replace it in Cape Town is well-nigh impossible. I have two friends [sad hey? – just joking], who are experiencing this big time; the one Joburg to Cape Town and the other, even in KZN’s North coast developments.

This trend is highlighted in the latest FNB Property Barometer: 1st Time House Buyers. John Loos reports:

 

We find Gauteng still to be the strong 1st time buyer region on the one hand, and Cape Town to be the very weak 1st time buyer region on the other.

 

Greater Johannesburg had an estimated 1st time buyer percentage of 21.59% for the 2 quarters, and Tshwane Metro a massive 30.75%.

In the 3 major coastal metros, Ethekwini Metro had the highest rate, i.e. 20%, Nelson Mandela Bay a weak 10.5%, and Cape Town Metro a very low 6.46%

These major divergences partly reflect diverging home affordability trends in recent years. We believe that slow house price growth in Gauteng over the past decade or so has greatly improved home affordability (average house price/average household income ratio), whereas at the other end of the spectrum, Cape Town’s home affordability has deteriorated significantly during recent years of greater market strength and strong house price growth.

 

In short, FNB is saying that new homebuyers can’t afford the prices in Cape Town but can afford the slowed down prices in Joburg. Extrapolate that fact a few layers upwards and the middle+ markets, who are baulking at Cape prices, are seeing value in Gauteng. Really glad that we have this green shoot confirmation of above-average rising prices in Gauteng; a stance this blog has taken since December especially.

And here’s a stab in the same direction – the national GDP growth rate is going to be at or near to 1% for 1st Quarter 2018. May be naive but we should not underestimate the force of positive news on our economy.

A person who I have not had the privilege of meeting but who I admire through the Press is Andrew Cantor, CIO of Futuregrowth. Futuregrowth is a huge investor in Commercial and State Owned Enterprises [SOE’s]. It was Futuregrowth, with other significant players, who eventually refused funding to Transnet, Eskom and that other cash-eater, SAA, in 2016/7. Thankfully, we have not yet experienced the dire predictions of those times and may it remain so. But Andrew has written an article entitled, It’s not so gloomy in SA, in Financial Mail, the main points of which I share with you as an extract:

It has become all too easy to overlook the positive forces that have been at work in the country in recent years, and to underestimate the potential that exists for positive change.

It is my belief that SA has many core strengths and that its challenges can be met. I am comfortable, on a daily basis, to invest pensioners’ savings into this country.

We all know the bad news. So, to explain my confidence, I’d like to offer some perspective.

SA has witnessed a remarkable political change: a new president, new cabinet and clear evidence of a crackdown on corruption.

The Futuregrowth credit team has, since the fourth quarter of 2016, been in engagement with the six largest state-owned enterprises about issues of governance. We found that four had reasonable governance structures and practices and, subject to certain changes, we recommenced lending to them. Eskom and Transnet have been at the centre of serious allegations and these are being investigated through various parliamentary and judicial processes. Our analysts continue to be in discussions about governance and improved disclosure with both these organisations and are finding them co-operative. We have not yet recommenced lending to either.

As we look back, there are some very positive signs despite the past difficult decade:

  • SA’s constitution and judiciary have stood the test. The principles of the constitution were defended repeatedly by a free and independent judiciary.
  • SA’s incredibly free press played a critical role in creating a channel for truths to be aired and for the public to become aware of the problems.
  • Democracy itself has played a key role. The ANC suffered meaningful setbacks in the municipal elections of 2016, and the mood of the electorate was a clear warning that change for the better was vital for the party and the country.
  • Civil society found its voice through whistleblowers, e-mail-leakers, writers, academics, entertainers, financiers and others.
  • National treasury is the linchpin of fiscal control, and has a strong culture, with many dedicated professionals.
  • Often forgotten, the Reserve Bank has constitutional protection, a clear mandate and independence.
  • And SA has a large, professional and ethical investment community with a strong pension fund investment culture, legal frameworks and regulatory oversight.

As a bond investor, I deplore the weak standards in SA’s listed corporate bond market. However, that perspective can do an injustice to SA’s very strong equity market and its remarkable government bond market. Both are world class.

And we are in a unique historical position to effect positive change.

Despite good global growth in recent years, domestic mismanagement has undermined fiscal accounts and economic confidence — resulting in low domestic growth, credit-rating downgrades, and worsening inequality.

That said, the economic outlook is brightening:

  • While GDP growth estimates are still pencilled in at between 1.5% and 2% for 2018 to 2020, the rise in confidence gives a likelihood of materially better outcomes.
  • Domestic inflation remains subdued, offering scope for monetary policy flexibility.
  • We expect better fiscal control and growth to stabilise SA’s credit rating.

As we approach the 2019 national election there will no doubt be comments and cross-winds. This may be unsettling, but during my 28 years in SA good sense has ultimately prevailed.

Shew! If that does not encourage you, nothing will. Bad news will always be there. Just had lunch with British people and they are concerned about Brexit and would love to live here; how’s that? Andrew’s perspective lifts us from the gloom and places us in hope.

Do you do that daily where you touch the lives of Others?

Yours in Property.

PS – if you are looking for experienced and professional assistance with the home buying process, Contact Homeloan Junction – They take care of all the steps so that you can focus on what matters most to you.

HOME OWNERSHIP

In this blog, we cover an issue upon which I am biased. I admit that upfront so that no illusions are created.

The issue is full title standalone housing versus sectional title homes.

The recent FNB Property Barometer gives some insight into this phenomenon and we quote as follows:

The Sectional Title Housing Market Segment continues to outperform the Full Title Segment, although the latter segment has seen its average house price growth accelerate somewhat.

The FNB Sectional Title House Price Index has remained at a faster growth rate than Full Title of late. The Sectional Title House Price Index rose by 5.18% year-on-year in the 4th quarter of 2017, having accelerated from 4.96% in the 1st quarter of the year. 

The Full Title House Price Index, by comparison, showed a slower 3.95% year-on-year growth rate in the 4th quarter of 2017. However, its growth had accelerated a little more over the year than the Sectional Title Index, from a lowly 3.18% year-on-year in the 1st quarter of 2017.

Our panel of FNB valuers also perceived the Sectional Title market to be stronger than the Full Title market in the 4th quarter of 2017.”

Let’s just analyse this trend. What does sectional title represent generally? Secure estates with smaller homes on smaller stands and community living.

On the negative side, if you don’t like people, you’re too close to the neighbours. In addition, you become liable for the community rather than your own costs. So, as per our units in a Cape provincial town, you become liable to paint the whole complex when that is needed or the sewer repair even though your own toilet is working. Of course, you don’t really feel this as a good Body Corporate will make provision for such an eventuality. In my Mom’s case, the roof is still asbestos sheeting and this needs to be replaced at great cost and with sensitivity of those living below. The financial provision is building for this to happen and even the downstairs units are contributing to the replacement. Painting is another generic cost and gardens are contained in the operational budget. In essence, everyone contributes to the common good of the complex.

So why stay there and endure all these common costs? I would put to you that the major reason is the simple human phenomenon that there is safety in numbers. Older folk feel comfortable that having a friendly neighbour provides then with a point of first call should there ever be an emergency. But for the younger folk, having neighbours, especially good ones, just creates a sense of community that you can get nowhere else. The kids grow up together, the lifts to school are easier, and the sense of security and camaraderie is expanded as people live closer together.

So, it is not unusual that sectional title properties are more sought after than standalone houses. To be honest, I’m not sure this is a purely South African phenomenon. It may well occur elsewhere. Here are some of the reasons why:

  1. Community is a modern trend. We give away some privacy in order to live in community. I have a friend with a 3000m2 stand, who has planted fully grown trees so as to avoid neighbours. But he would be the first to admit that he is unusual. Firstly, affording such a property is the realm of the wealthy and secondly, not everybody needs such reclusivity. For many, the proximity of neighbours is sacrificed for the benefits of communal living.
  2. Expenses are shared in a sectional title complex. Painting, municipal costs, security, building insurance, and Body Corporate costs eg a burst geyser, are all co-borne. In other words, when we paint, I pay just that portion of my cost that pertains to my square meterage. So I don’t need to pay for my whole property but just for that portion that I “use”. That’s neat! The same goes for security. When you drive in Inanda in Joburg and you see those guard quarters at the entrance to the property, you’re looking at R20-30000pm for 24 hours guarding. In your complex, you get that but for a fraction of the cost.
  3. The case for security goes without saying. Firstly, you have it with everyone else but you also pay less and feel safer in a complex where there is movement around you. Nothing is fool proof as my friend’s daughter who was followed right into her complex will tell you, but there is a semblance of more security in a townhouse complex than on the open road.
  4. Sectional titles can be cheaper to buy and give a better return long-term than stand-alone houses. The reason upon entry is standardization. A 50 home complex has 500 common windows, 1000 similar doors etc so prices can be negotiated by the developer that pale into insignificance compared with your non-standard, fancy windows and doors in your architecturally designed home. This what you buy – similar design, cost-effective material and building costs and often, benefits like transfer duty included in plot-and -plan sales. Really, a great value proposition.
  5. Finally, a benefit worth mentioning in an ageing population [that’s you, by the way :-)], is that old age facilities accompany communal living. Where we live, Alzheimer’s centres, Frail Care and proximity [if not on-complex] to such facilities, is crucial to the buying decision and the value proposition of community living. High demand exists in these areas as global populations age beyond their time.

There are a few property types in the communal category that bear unbelievable common-sense. My uncle taught me that properties along a ridge, with a view, and properties along a shoreline, close to the sea, are scarce. Another is the golf course and eco-estates that have sprung up. The golf course estates of course now bear the water issue. Golf courses drink water so practically no more will ever be built except at the great expense of grey water reticulation which makes the stands expensive to service. Eco-estates will continue to spring up in many different forms as urbanites attempt to escape the pressures of city living. It is therefore fair to say that these estates carry a scarcity value that bodes well for good investment returns.

Compare these benefits with a stand-alone house. In this case, your security is your responsibility, your neighbours are “next door” rather than close by and every cost of the property is your own exclusively. You may be paying excessively for privacy.

Thus, sectional title complexes have carried value over the years and have proliferated as a form of property ownership.

Property ownership remains a definite source of wealth in South Africa. The fact that you own property, never mind the advanced financial engineering of gearing properties, remains a major source of wealth creation for most young people.

In this regard, Homeloan Junction is positioned to help you acquire property. Our advice, access to the free services of the banks, and our ability to negotiate credit terms that suit your pocket, mean that we remain a leading originator in the country. We have offices countrywide and can refer you to them with any need you may have. Contact us on www.homeloanjunction.co.za for a free consultation and pain-free mortgage finance.

 

Yours in Property.

DETACHED?

I loved reading John Loos’ Property Barometer – 2017. John, together with Jacques du Toit of ABSA , is one of the most experienced property market commentators in South Africa. His Barometers are both scientific and appealing. Bad news when revealed, but also good when the tide turns. I am always also struck by “what could have been” if not for a few negative factors. Our president, now for years, has featured in the “what could have been” column and none the least, last year. When we think how we came out the blocks in 2016 expecting 1.2%+ growth and how, despite the technical aberration of 2% in the 3rd quarter of 2017, we only have managed 0.7%, it is good to read John quite up-ish on the scientific numbers for House Price Growth.

Let’s quote FNB and then make some early-2018 points:

“2017 saw the FNB House Price Index growing by 3.7%, a slowing on 2016, and the 3rd consecutive year of slowing annual average price growth. We had expected a slower house price growth rate in 2017, with the country’s economic growth performance having stagnated for some years.

However, monthly house price growth has been accelerating recently.

 

2017 FNB HOUSE PRICE INDEX PERFORMANCE

2017 turned out to be the 3rd consecutive year of national average house price growth slowdown. From a multi-year high of 7%, reached in 2014, the FNB House Price Index’s average annual growth slowed each year, to 4.8% in 2016 and then further to 3.7% in 2017.

Based on 11 months’ worth of CPI inflation data, this translates into an estimated decline of -2.4% in real terms (adjusting house price growth for consumer price inflation).

However, from a low of 1.5% year-on-year house price growth in December 2016, the rate gradually rose to reach 6.1% in December 2017, further up from a revised 5.5% rate for November 2017.

In real terms, house price deflation that had occurred earlier in the year gradually dissipated, and by November we saw a slightly positive year-on-year real house price growth rate of 0.8%, house price growth moderately exceeding CPI (December CPI data is not yet available).”

Under the circumstances, this is truly good news! Could it be better? Of course, but given the state of the economy, we could have seen:

 

  1. A deeper dive of the real HPI with Inflation higher and Interest Rates higher, thus depressing markets into falling residential prices.
  2. Negative sentiment prevailing in the minds of Consumers with depressing Consumer Confidence.
  3. Even more destructive politics approaching the Elective Conference.
  4. A Full Junk Status with Moody’s making its final move.
  5. Drought in the Western Cape crippling the pearler of a run on property prices in the province.
  6. The practical collapse of the Eskom cashflows.

 

“Bleak”, would not have been the word to describe the economic landscape. You can only imagine.

 

Instead, we have:

  1. A 6%+ increase in House Prices in December 2017.
  2. Cyril Ramaphosa as the president-in-waiting.
  3. The Eskom board rejuvenated with Jabo Mabuza and Mark Lamberti [the two I really know, but I’m sure there is still much serious competence] in concert at senior level firing sham re-appointments of Koko and the like.
  4. Good news coming out of Joburg’s business community despite one of their own, being Steinhoff, toxifying the air.
  5. Mike Brown and the likes inviting the ANC President to re-engage Business as Pravin had envisaged the rescue before the Junk status nightmare.
  6. Clean-ups under way in Joburg and Pretoria as fast as possible.
  7. Our SARB and the FIC free of state capture and our Treasury pulled back from the brink. You just have to listen to smooth Gigaba to realize that and, when last did you hear about Nuclear?
  8. Late but not least, some action being taken by the NPA and AFU against the Guptas.
  9. A continued stay of execution from Moodys as regards their Negative Watch for a full downgrade.

Truth be told, if the Cape Town City Council had been one year ahead of itself with the drought measures, there would be much cause for celebration.

Not the best performance of our country but certainly it could have been worse. As I said in my first blog for 2018, I am convinced that CR’s leadership will shine through and that we will see rapid change taking place in critical areas starting [with an excellent start] with Eskom.

It remains for us to be focussed and positive, using every scrap of good news to motivate our actions and be successful.

In closing on the Title’s question, is there a possible detachment between rising house prices, which generally indicate a lively market, and consumer confidence? It seems counter-intuitive to me as over the years. consumer confidence has been the main driver but there is a thing developing called “-fatigue”. Corruption-fatigue, Bad News-fatigue, Politics-fatigue, Negativity-fatigue etc. People just gatvol of everything being down-and-out and needing to just get on and live their lives somewhat normally. If you’re moving from Bloemfontein to Joburg you could sell your house and “rent for a while until things improve”. However, could it be that people are saying “this is as good as it gets so let’s just get on with life”, or, “now is a good time to buy”. Either way, unless December’s number is just a statistical aberration, there seems to be an inexplicably good rise in prices which even has John Loos excited. If I’m right, agents and originators score. If I’m wrong, I’ll apologize. But, for sure, we will have a better year than last year – that I’d bet on.

Yours in Property 2018.

THE ELECTIVE CONFERENCE

Well, it’s happened!!

Just sitting here listening to the de-brief of what took place has caused me to rise and write this blog immediately.

I am still to write a synopsis of the property market in 2017. Those who have been reading me during the year know that I will be positive. Not in the sense that that is the stance I take as a rule but rather, that the end of the year is better than expected after our president turned the Treasury on its head for the second time in as many years. In doing so, he ignored any common sense that may have prevailed locally and internationally. His view was his view, no consultation, no permission just Guptanomics applied brutally. In doing so it feels as though he cooked his goose and has paid the price. In his own words in his scathing last speech, he is a soldier and he will march on. Man, has he left a legacy of unity at the cost of principles, and best of all, free education for all [well, 90%], which we cannot afford! Guess who is going to pay for it? – the wealthy and the Poor.

But this Elective conference which I must say has delivered the candidate I prayed for, has delivered a mixed-up unity like none other. There are people in senior Secretarial positions whose own province could not stay out of court for branch and PEC electoral distortions. Other people who have played the game of politics for politics itself – the amassing of votes in a democratic society but who probably have no one in mind but themselves. Self-centred individuals who triumph on the backs of well-intended people.

KZN could implode. What that means I do not know but I’m sure unless the leaders of the ANC pull together, that province could well continue with their low-intensity civil war. My sense is that whilst the Eastern Cape is bereft of competency and leadership, KZN is bereft of values as well. Without values, killing your tender competitor is sanctioned and if that means revenge killing, so be it. Heaven help the leaders there as they take unity to the ground and make it happen in the hearts of the people. I cannot help but think Jacob Zuma has set alight the province where he scored his greatest victory, namely, to quell the warring IFP/ANC factions in the 90″s.

The one thing I have seen all my life is that people follow leaders. Watching Colin Maine, the ANCYL leader, it was amazing to listen to him change his tune and welcome the unity that the appointment of Cyril Ramaphosa brings. What rubbish! He hated and slated the man in favour of his beloveds – jz and ndz. But how fast the change occurred as he saw his salary and his prestige swiftly flowing out the door. Will he survive the next election? I don’t know but I must say, I have seen the same shift of position happen often in Corporates. Human systems adapt to leadership. Leadership can lift the games of their followers. Or, leadership can sink their followers to the lowest common denominator. Jacob Zuma has done just that and in case you thought he’s going away, remember, he is still president of our beautiful tortured country.

So a couple of points for the property market:

  1. The Rand strengthened prior to the conference on the buzz that Cyril Ramaphosa would win. Now it has crashed through barriers last seen 2 years ago, especially to the British Pound.
  2. This strengthening movement is probably over-stated and we will need to see if it continues and then sustains. It will literally take the first few words of the new President of the ANC to shift it one way or the other. Even as President of the leading political party in the country, his stance will determine the short-term value of the Rand. If he favours the country overtly and the ANC secondly ie in private discussions, he will win us kudos.
  3. We have a downgrade from Moodys in the wings. I think Cyril Ramaphosa has just won us a reprieve.
  4. The downside, for those who wanted to win the 2019 elections, is probably that the ANC will consolidate and even win back metros they have lost. Joburg, prepare yourself for change. It will take a huge amount of scepticism and a massive amount of compromise with the zuma faction, to foresee the ANC losing in Gauteng again.
  5. Speculation aside, the win by Cyril Ramaphosa is good for property:

– The 1% growth that we lost out on this year will materialize as 2% next year.

– The drain of the SOE’s on the economy will begin [very slowly, however] to recuperate.

– It will be very interesting to see if anyone goes to jail, but I think there will be some sacrificed lambs who will do time to satisfy the populace.

– When the economy rises, jobs will be prioritized and COSATU will be manifested in all their glory in the new-birth of the tripartite alliance. That happy band of vote-winners will be in unison again. Tonight’s manufactured unity will be realized and expounded to the Press.

In summary, property will benefit and rates will decline as long as the Rand holds onto its new-found value. Slowly but surely, property will rise in price. Don’t write off that Gauteng, on the back of positive politics in a winning streak and with the fresh feel of abundant water, don’t be surprised that prices rise well above the average of the last three years. “Prepare to meet thy boom”, was how the late de Kock, the Reserve Bank Governor, expressed it.

What a Christmas present for South Africans of every walk of life! Jobs will be at the centre of a conference that Cyril Ramaphosa pulls together with Business and Economists and Others. Prepare for a Grande Plan that mobilizes for jobs – probably the most precious thing besides water in our economy at the moment.

More to come but in the meantime,

Yours in Property

5 Truths about getting a Homeloan

For many South Africans, applying for a home loan can be a stressful procedure. This is perhaps the biggest financial investment you will ever make. There is much that South African buyers don’t know about the process of applying for, and the responsibilities that come with a home loan.  As a first-time buyer, do you know what questions to ask?

Is it difficult to apply for a home loan?

First-time buyers find the challenges of meeting the criteria daunting with what seems like endless paperwork, red tape and rising property costs. However, once you have all the information about the home buying process at your fingertips, you will discover that the process is relatively straightforward and simple.

Whether you are a first-time buyer or you are seeking to purchase a second property as an investment, Homeloan Junction can help you by putting our wealth of resources at your disposal. Here are 5 home truths about getting a home loan that will get you well on your way to finding that dream family home.

  1. Create a good credit record

Firstly, it is important to have a good credit record before applying for your home loan. The banks are unlikely to approve a loan for first-time applicants if there is no credit record or history of being able to pay consistently. Even if you have saved for a deposit, your application may not be approved simply because you have no other loans. So, before putting in your application for a home loan, spend some months creating a good credit history by paying smaller loans at the right time, like your cell phone or clothing accounts. Obtain a free credit report online and check whether you have used enough credit products and whether you have been a reliable borrower. If there are any errors in the report, request to have them fixed so that you can improve your chances of obtaining a loan.

  1. Decrease your monthly disposable income

Banks are also not willing to offer loans to high risk debtors. Decreasing your monthly disposable income by reducing non-essential debt and where possible paying off accounts will help your chances of home finance approval. The most important thing is for you to pay your accounts and outstanding credit card balances reliably and on time. Do not close accounts which you have just repaid, keep them open and use them.

  1. Deposit preparation

A home buyer is expected to contribute to the purchase of the property by paying a deposit. It determines the loan-to-value ratio, which expresses the loan amount as a percentage of the property’s sale price. The larger the deposit is the lower this ratio is and the less you will have to borrow.  This will increase your chances of home loan approval and help you save on interest payments as banks can then offer a lower interest rate. That is why it makes sense for you to save for a deposit to use towards the purchase of a house. Use our savings calculator to work out how much you need to save and for how long, to save for a deposit for your home loan.

  1. Work within a budget

It is best to consider a property that is within your budget and that you will be able to repay. While your first home may not be the mansion of your dreams, it is important to ensure that it meets all your current and medium-term needs. In this way you will be able to afford your family home without getting into serious debt. At Homeloan Junction, we provide services and online tools that can help you plan ahead of time. Use our home loan calculator to decide on total costs and assess affordability and whether you as a first-time applicant qualify for a home loan. We also offer innovative alternatives to traditional bonds which could see you paying far less in the long term and paying off your loan over a shorter period of time.

  1. Make a formal enquiry with Homeloan Junction

At Homeloan Junction we make it our business to keep the home loan application process as simple and straightforward as possible. Talk to us today about how you can successfully secure your loan. We can help you with all the documentation needed to make a formal application at a bank. For more information on whether you meet all the criteria and what you can do to make sure you qualify, contact Homeloan Junction today.

Real house price growth 2017

The FNB Property Barometer of 1 February 2017 is a real bundle of joy. It starts, “2017 starts on a very weak note with the FNB House Price Index narrowly avoiding year-on-year deflation.” It continues to report that “the FNB HPI for January 2017 rose by a mere 0.3% year-on-year having already been in month-by-month seasonally adjusted decline for the past 6 months.” And for the final nail, “in real terms…….. the index recorded a year-on –year decline in December 2016 of -5.4%.”

You know, you can’t talk bad news up but the benefit of only having to report the facts is that you just need to state them. For those of us with jobs in Sales and businesses employing tens of people, bad news needs to be the spur for success. It’s so important that I need you to read this again: “for those of us with jobs in Sales and businesses employing tens of people, bad news needs to be the spur for success.”

In that spirit I write this blog.

The House Price Index [HPI] is a measure of the periodic increase of house prices over time. Different banks measure the prices differently, but all give very similar results at the margin. Normal measurement is year-on-year and that, including inflation and excluding inflation. The bottomline is that inflation erodes value so a 10% HPI increase with a 12% inflation means we’re going back at -2%. The HPI is more than a measure of simple house prices and the economists are quick to explain that slow house price growth is symbolic of economic pressure. Given who is buying and selling houses, the main indicators would be employment and interest rates with the huge cloud of Confidence overarching anything the consumer does long-term with their money. You may take your family for a breakfast even if your job is feeling insecure but you sure wouldn’t move to a new house under a similar cloud. Into the facts of employment and rates, we factor in such issues as impending downgrades, shenanigans in parliament, negative news reports and such lousy extraneous factors as drought and low commodity prices. So HPI measures so much more than just a price increase as we read the numbers.

Beginning with drought and commodity prices, let me make a few encouraging points:

  1. The drought has practically been broken in central South Africa. Having the dams full should not be underestimated even though certain parts of the country may not have had all the rain they need. In addition, the crop is only about 3% up on last year because many farmers delayed planting or lost plants before the rains came. So full dams may not warrant massive relief but, as I so often use the term, if I was offered full dams in June last year, I would have taken it! Of a truth, though I sound a little blasé about the rains, I believe their coming is a miracle. So let’s assume the farmers have more maize, therefore we import less and that they have more food to sell so prices come down as everybody is now waiting to happen; what a great place to be in comparison. That’s good news!
  2. Commodity prices have risen. Yes, Donald Trump was a catalyst but I would imagine that global stockpiles were depleting and the China crash of last year has somewhat normalised. If you had shares in Kumba or even Harmony Gold, you have become rich in the last 6 months. Huge increases have occurred. The other commodity that affects us not as exporters but rather than importers, is Oil. In 2015, Clem Suntner was concerned about Oil going below $30 and causing huge societal casualties in oil-producing countries. Speculation aside, I put to you that it is not charity that has caused the price to rise but rather a control (though it has proven very difficult in the cartel) of supplies coupled with an expectation of improved economic activity in developed countries. So commodities have improved and for SA that is really good news.
  3. The 1%+ growth rate recently posited in the Budget speech was trashed in a recent article I read. The gist of the argument is that Treasury has undershot their growth projections on a number of occasions. All I have to say is that both ABSA and Standard also projected 1%+ in their forecasts. Therefore, added to the good news above, I am fairly confident we will see better growth this year. FNB in the Property Barometer, indicate that this year could be a year of two halves in the sense that the HPI also picks up towards the end of the year. The point for me is that we’re coming off a base of 0.3-0.4%. Surely this travesty is beatable this year? The downside remains a downgrade and any negativity that comes out of the looming cabinet reshuffle. On both these counts, you and I need to “accept the things we cannot change”.
  4. The DOW continues to soar and is being talked up in the States. Today’s speeches by Trump may stymie that a little as he stumbles on his tax and healthcare promises’ timing, but, it does seem, America is in for a good growth spurt. That’s exciting and let’s hope Warren Buffet et al are right.
  5. I make the point again, I worry more about tightening credit than I do about flat house prices. By that I mean that of house prices move to such an extent that affordability and value come into play, bankers may tighten credit approvals. Flat house prices and level interest rates coupled with reasonable increases in salaries, mean that affordability ratios improve. So the current market may not be the best scenario for sellers, but buyers will be better able to afford their bonds. That’s great for sellers, buyers and anyone with an ad valorem commission riding on the transaction.
  6.  I sat in a board meeting today and a large listed company’s economist made this statement in their Funding report: “It is anticipated that the interest rate cycle has peaked and that the SARB may begin to cut rates this year.” From their mouths to SARB’s ears! I have made the point before that rates have been well-managed but have been rising at a time SA Inc can ill-afford it. I believe that whilst there has been an imminent threat of inflationary pressures [food, fuel, weakened Rand], the SARB has been ahead of the curve, in particular the USA curve, of raising rates. This confirmation from a highly regarded Economics unit is very well received. I also think that the Elective year will be agood year for a rate reduction/s to occur. Though not common for the ANC-led government, it would do nobody any harm politically and would certainly appeal to the hard-done-by middle class. Watch this space, is all I’ll say.
  7. Finally, the Rand must be dumbfounding the economic fraternity. R12.90/US$ is a really good number when you consider where we have been and how we felt about it at the time. As I write. It sits at R12.99. This offsets the Oil price increase and the cost of many other imports. Sadly, Mr Gordhan has used the respite to attach more taxes to the pump price of fuel. But as for the beloved Rand, good on ‘ya!

It’s good to have some positivity to hang on to. Not conjured up, just a statement of facts; sometimes re-positioned but certainly quite feasible. As usual, so much depends on leadership and this country’s political and social leaders have much for which to be accountable. The SOE’s, PRASSA, SASSA etc must not be allowed to cock it up – wasn’t it good to see PRASSA governance kick in and dismiss the acting-CEO immediately?

So take heart. All is not lost and rising house prices may well be lagging the curve of economic improvement. In the final analysis, whether you read this or believe this blog, your energy, optimism and sheer hard work has got you this far and will take you through. Nothing changes that rule for successful people. As the quote by Leonardo da Vinci goes:
It had long since come to my attention that people of accomplishment rarely sat back and let things happen to them. They went out and happened to things.

Yours in Property.

BUDGET 2017

If you asked for a word, I’d say: “Neutral”.

Without all the detail in which I’m sure you’re well read by now, only one highlight stands out for property and that is the raising of the threshold for properties that are valued at R900 000 (from R750000 currently), or less which will not be liable for transfer duty. A 20% increase “gift” to spur first-time and low-income house ownership.

As for the rest of the budget, don’t confuse “neutral” for a lack of interest. Of course, he raised the bracket for R1.5m and above to 45% but that could be seen as part of a progressive tax strategy. And then, the infamous “sin taxes” which will always be there to make wine more expensive and balance the budget. What he never did was raise the thresholds for the middle income which makes this group one of the most taxed in the world in total. That saving for SARS is estimated to be worth about R12bn and is simply increased taxes as a result of inflation-adjusted increases. In other words, if you get an increase equal to inflation, you will earn less after tax in real terms. Sad but true. Beyond that comment, the usual massive increase for education is a valiant effort by government to educate the young people for leadership and technical roles in the future. To be honest, education often feels to me like throwing good money after bad when I hear how many schools behave and/or perform. Tragic that we are extremely poor in Maths and Science and that we still have mud schools; surely inarguably acceptable with a budget of R320bn per annum.

In all Minister Gordhan attempted, he needed to fill a R28bn Income hole. He did this with a slight rise in borrowing but is still above the global benchmark of 3% of Debt to GDP. This R2tn debt, added to spiralling government job counts and cost is really precarious if rates [cost of funds] start to rise generally, or in the event of a downgrade. It was remarkable how, after speculation of an impending reshuffle, Tom Moyane’s constant niggle and Brian Molefe’s swearing-in, that the Minister could still assert that he will continue to represent SA Inc as good for the Ratings Agencies to not downgrade us. How motivated would you or I be under similar pressure?

So what Gordhan did not do or say is good. He did not shrug off the Agencies and borrow to appease “radical economic transformation”. He did not cut social welfare, security or education. He did not follow suit on the radical use of the term “radical” as we had heard in the SONA and he did not jitter the markets. Amazing, in round figures, the Rand lost about 1% in 24 hours and pulled back below R13/USD in the next 24 hours. And we even got a small [though short-lived ] petrol increase! All-in-all, a fine achievement for property.

Yes, it could have been worse but we can expect growth to continue to improve to over 1% this year. As I hear that the Vaal Dam may overflow soon, it would seem things are turning in our favour. And commodities seem to be sustaining their price rise. But the Minister can do little more for house prices to rise. He needs help from No1 and his cohort of Cabinet ministers. From that side of the ring, the worst we can have is a damning, harmful cabinet reshuffle in which key ministers are punished for their lack of political support. Harmful because it will crush Confidence and lead to further loss of jobs. That, more than anything else we can foresee, would be bad for property. But, as I have said before, I believe that we have managed interest rates well and I get the sense that no increase in SARB rates will occur this year. If we can keep a strongish Rand, behave ourselves in an Elective year and enjoy some natural benefits like rain and ore prices, we could see things improve. A long shot for which I stick my neck out.

So, from Homeloan Junction’s side, we continue to affirm this country, the resilience and common-sense of her people, and the abundance of her natural resources. As such, we remain positive that the year will trend positively. You can be sure, in that spirit, that we will be here to service your homeloan needs.

Yours in Property.