LIVE

/in , /by

I’m sitting here looking out on my garden through newly cleaned glass stack doors and the sun is bright, the wind almost nothing and everything is shiny after the rain a day ago. Birds are tweeting and the francolin is screeching over her chicks; even our yappy dogs in the neighbourhood are quiet. Our sausage dog has got the idea: peace and quiet in abundance. Imagine the picture I’m looking at. Close your eyes. Take a deep breath… and another. Take 8 more. Keep your eyes closed and listen to your breathing. Feel alive. Feel refreshed. Feel you.

I’m tired of rehashing the same old news. I discussed this with Vincent and he suggested I run a series on a topic where we all can learn and re-think our lives. I’ve chosen LIFE as the acronym and will write 12 blogs on the inspiration I receive per letter. If something strikes you anew or afresh, tell me. I’ll take your emails with pleasure. If it bores you, tell your partner, or rather, don’t read it 🙂

I’ve just realised Live and Live are spelt the same, but pronounced differently. Live is the act of living and speaks to action, location and relation. Live, if we’re honest sometimes, is what we do. We speak about the rat-race as though we’re looking in on it. We seldom really picture ourselves in it other than when we’re exhausted. Then we tend to feel like we’re a rat in the race. We’re paying bonds, running teams, making kids [just had to put this one in delicately!], making other people happy, putting on a brave face, being nice to people who are bugging us, buying, eating, studying, lending, selling ourselves in service, driving, running, exercising, …do I have yours yet? Just add it, You know what I’m getting at.

We live in a place that FICA wants to know ten times a year. We live in relation to those whom we love, befriend, serve commercially, and fight with. We live with responsibility, duties, accountability, and legality – all connected to the previous relationships and those beyond like our banker, SARS, Home Affairs, doctors, hospitals and insurance companies. By all means, add your own. Then, we have all the media such as news media, social media, marketing media, professional media and every other instruction we get with our new toaster. It is little wonder we feel bewildered at times, tired most evenings and experience the brevity of weekends too soon. To live is hard work and to breathe, as we did above, seems cheesy when you’re so busy.

Live [or, a-Live, if you prefer for the pronunciation], is a biological state. When we live, we breathe, we urinate; we touch, smell, see, taste, hear and think. Dead is the opposite of live and, if you’re reading this, you probably still are alive. Being alive enables us to live – sounds really obvious, but if all live does for us is enable us to live biologically, then we probably look like the person I described above. Enter the higher functions like instinct [which I really believe is the 6th sense, especially for women], common sense, choice, imagination, positive and negative thinking, perspective, direction, purpose, meaning… got yours yet?…and live becomes a-live. Now the total man or woman begins to appear. Ask Vincent the difference between the two – a little baby is born having been attached biologically to her mother. Dependent, screaming, suckling, looking and moving; the baby lives and is a-live so she begins to take on a form that will shape her entire life. Indeed, nature and nurture kick in the day she knows she exists and I have no other word but Miracle to describe that.

So live and live co-exist. They together give us life and living; the one inseparable from the other as we go about our lives. The real issue for us is how to live and come a-live? How do we do that every morning and what does it matter to others whether we fail or succeed? Me, Mine and Ours – self-centeredness of the highest order. Or, Me, Mine and Others to the point of self-sacrifice? Neither is possibly correct, but both call for our attention. Rather than give you a 10-point self-help plan, here are just two things that I’d like to share. The first is, be kind to yourself. The first person I mention, even if it is you most of the time, is doing her best with cards life played her. You may think you’re just coping, but those who depend on you probably see Mom, Wife and Estate Agent; roles that are chosen and lived out with so much dedication.

Don’t allow ingratitude, the sense of being used, anger directed at you and sometimes, the nonchalance of a teenager to be the sole source of your validation. Like me, and many around me, age may have ploughed some wrinkles on your face but so have smiles. Grey hair is inevitable for most of us; in fact, turning grey is simply the hallmark of the next stage of your live-ing. Being kind means looking after yourself, forgiving your past and just learning from it, taking deep breaths purposefully especially when you’re tired or aggravated and then perhaps increasing that to something that really makes you breathe deeply, like walking. Being kind to yourself is not a cliché nor is it cheesy. I’ve made some bad mistakes and if I dwell on them, being kind to myself does not come easy. We all have, and often need the word in season, to be encouraged to have deeply regretful but, nevertheless, learning experiences. Let kindness to yourself make the days you need it to and make the life of gratitude you want to live.

Another simple thing is Others. You see, you may be in the stage of Success – pay the bond, educate the kids, grow your career, support your partner to grow hers. It’s hectic and any calmness I may feel today completely belies the franticness of this stage in my life. Bob Buford, in his book called halftime [a must-read for 45-plussers], calls this stage, success, but perforce, this stage gives way to significance. Sooner or later, our need for speed, gives way to the great life questions: Why am I here? Is this all there is? Where is this sense of my own mortality going to? Seeing this positively, success gives way to significance and significance, for many of us, implies something to do for others. Grandkids, animal rescue, charities, the sick, the homeless, the poor, ageing parents and many other causes [for Buford, the raising of the education bar for schools in America’s poor suburbs – sound familiar?], start to take pre-eminence in our lives.

All of a sudden, we’re empty-nesting and post-menopausal [men as well!!] with time on our hands, the bond is paid and, frankly, most of our earning potential is behind us. Suddenly, significance takes on the meaning and all that stuff like “leaving a legacy” starts to kick in with the time to apply ourselves. Others become meaningful and my closing suggestion is, start thinking about significance now – retiring and then wondering why you’re bored is honestly too late and time wasted. This beautiful, tortured country of ours has tons for people as skilled and connected as you and I, to do. Meaning follows other-centeredness like light follows dark, in my humble opinion.

A closing thought [adapted from a wonderful prayer doing the rounds at the moment on social media]:

This is my prayer for you,
That negative people will be kept at a distance,
That you will be defended,
That you need not be defensive when your name is mentioned,
It’s better to walk away than to live in tension.
But listen to me, I pray that you’ll live life intentionally,
When someone is down you’ll be a friend in their need,
Serve others before you serve yourself.
I pray you’ll live for more than the pursuit of wealth,
That you’ll live vertically and keep your eyes off the horizon,
That you’ll walk high in your worth and let no one tell you that you were made for less,
That you spend your life looking forward and not back,
That you’ll give and get blessed,
That your life is long and your nights are calm,
That your spine stays stiff and you live to fight on,
That you’ll find something for the unique you to believe in,
And that your legacy lives on.

Yours in Property.

INTERESTING SLOWDOWN

/in , , /by

Boy, do we have an interesting market at this stage in the game.

Our gut would tell us that the property market is slowing. Recession, politics and pessimism [RPP] all seem to indicate the obvious, but in some of the recent reports received from Homeloan Junction, some great contradictions appear to be happening. Make no mistake, the general trend is downwards from both the estate agents and the economists, but let’s see what jumps out of the woodwork to encourage us.

The following extracts are used for explanation and then I will make brief comments on some of the aspects:

First of all, the ooba ORIGINATION OVERVIEW: SEPTEMBER 18 tells us that “the Bond Application Intake for September 18 was 10.8% lower MOM and 8.9% lower YOY.  Cumulative volumes for 2018/19 are 10.8% down on same period 2017/18.”

Guys, if we had “suffered” that level of reduction in Sub-Prime [2008-2012], we would have been ecstatic. Most of us were down 90% by January 2009 from the height of July 2007. 10% is surprisingly good given the level of RPP in the market right now. I bet many origination consultants with good estate agent relationships have not yet felt any marked decline in their business. Admittedly, the issue is always pipeline and when that begins to drop, watch your step.

FNB’s Property Insights report, covering the FNB Estate Agent Survey’s 3rd Quarter 2018 indicates this slowdown:

“The 3rd quarter FNB Estate Agent Survey points to a further weakening in the housing market (and perhaps economy too) in the near term. A broad declining trend in the Residential Activity Rating started in 2015 and has continued in the most recent quarterly survey.

From a multi-year low of 5.35, seasonally-adjusted, in the 2nd quarter of 2018, the Activity Rating declined further to 5.12. On a year-on-year basis, the indicator went deeper into negative rate of change territory, from -7.21% in the 2nd quarter to -9.2% in the 3rd quarter.”

The direction in the rate of change in the Residential Activity Rating correlates reasonably, though not perfectly, with the direction in the rate of change of the OECD and SARB Leading Business Cycle Indicators for South Africa, sometimes even leading the Leading Indicators with directional changes. Both indicators thus point to an economy still in the doldrums, with weakening in the near term a possibility.

Agents point to further deterioration in market sentiment post “Ramaphoria”. Those that cited “Positive Consumer Sentiment” in the 1st quarter of 2018 were a far greater 56.7% of survey respondents. In the past 2 quarters, however, the response has deteriorated markedly. By the 3rd quarter 2018 survey, those respondents pointing to “Positive Consumer Sentiment” had dropped back to 9% of total respondents, while those pointing to “Economic Stress/General Pessimism” have increased noticeably to a very high 77%. The economic weakness thus appears to be increasingly taking its toll on sentiment in the market. Within this response category, agents include “recessionary conditions”, “cost of living increases” which include petrol price and tax hikes, and “policy uncertainty”, as factors.

For new mortgage lending, this can all have implications with a considerable lag.

While also having weakened of late, Gauteng appears to be the region where Residential Activity has held up best in the weakening national market. Of the 3 Major Coastal Metros, it has been Cape Town that has returned the lowest Activity Rating. This should not be too surprising, however, after recent years of far stronger house price growth than the rest of the country, Cape Town has run into home affordability challenges that have dampened demand and general activity.

Segmenting by Income Area, the Lower End outperforms, but the gap between it and the HNW has diminished.

In FNB’s Property Insights report, covering the FNB Estate Agent Survey’s 3rd Quarter 2018 Indicators of Price Realism and Market Balance,  in the 3rd quarter of 2018, we saw a slight quarterly increase in the estimated average number of “serious” viewers per show house before sale. From 10.42 viewers in the 2nd quarter, the estimate rose to 10.77. However, the average remains well below the 14.42 high reached in the final quarter of 2013, just before the early-2014 start of interest rate hiking.

In the 3rd quarter of 2018, we saw a further increase in the average time of homes on the market prior to sales. From 16 weeks and 4 days in the 2nd quarter 2018 Estate Agent Survey, the average time of homes on the market rose to 17 weeks and 6 days. We take the admittedly subjective view that around 12 weeks (near to 3 months) average time on the market more-or-less represents a market equilibrium situation on a national average basis. The market has thus broadly been drifting away from that equilibrium level since 2016.

No further rise has occurred in the high percentage of sellers required to drop their asking price to make the sale. The 3rd quarter 2018 survey showed a slight decline in this estimated percentage of sellers having to drop their asking price, from 96% in the previous quarter to 93%. Stock constraints remain low. We see very few agents pointing toward housing stock constraints in the market and slightly more pointing towards “ample stock”.

I order to corroborate the FNB and estate agents’ perceptions, just a short extract from Standard Bank’s Property Research of 25 October 2018:


“The SA property market was again softer Q3:2018 due to uninspiring real economy data and mixed signals from business and consumer sentiment indices. Also, financial conditions have remained tight, although relatively relaxed when compared to 2007 when last SA was in an economic recession. Consumers remain reticent about big financial obligations despite their relatively upbeat outlook on SA economy.

Regional house price trends show that the inland metros (Johannesburg, Tshwane and Ekurhuleni) still enjoy steady price growth but lost momentum in Q3.

In contrast, the coastal metros of Cape Town gradually decelerated in the past few quarters. Cape Town now is at the slowest pace since 2012. According to SBR’s regional HPI, it is also the first time since 2012 that JHB, SA’s biggest property market by volume, has outperformed CPT which is SA’s biggest market in value terms. We regard the current trends in CPT as a necessary cyclical downturn to realign prices with economic conditions at both regional and national levels.

The recent surge in prices (between 2014 and mid-2016) seems misaligned with the strength of economic fundaments at that time; now, prices are moderating. Waning sentiment due to the SA drought as well as policy uncertainty here and abroad, and a slowing influx of the affluent, restrained property prices in Cape Town. Properties in the higher end of our price segments are now deflating in the region and the volume of cash transactions is trending downwards.”

So we have the two banks pretty much in synch and the FNB Estate Agents’ research is really close to the coalface. To end, some points:

  1. On the lighter side, maybe I can get some sympathy for my early-year assertion that Gauteng would show real house price indices. At the time, I foresaw a good GDP growth and the fact that Gauteng house prices are really cheap in relative terms. At least now, Gauteng is the strongest performing market so I’m somewhat vindicated nearing year-end.
  2. Cape Town is adjusting significantly. No games here, it’s expensive and the only really good news is that we have alleviated Day Zero until the rainy season in 2019. Farmers and residents alike are delighted and the mood is far more positive on that front. It remains now for Patricia and the DA to sort themselves out so we can all get really happy so close to the next General Election.
  3. Don’t underestimate the fact that the SARB has not raised interest rates. Crippling would have been the effect on the back of Oil and VAT if they had. Thank you, SARB.
  4. The extended delay of house sales goes without saying but so interesting that the number of price reductions for a sale has reduced. FNB warns that we should not hang our hat on one measure, but despite the estate agents being “in stock”, buyers are willing to pay reasonably priced houses; that’s good news.
  5. On the other hand, sellers seem to be holding out for their price. Based on an average of 12 weeks on-market, that is increasing to over 16 weeks – a third longer. What that tells me is that genuine sellers are selling for good reason and that distressed sellers are fewer and further in between. In other words, distressed sellers would collapse their price to sell urgently but that’s not happening. I think part of the reason for that is that employment is holding its own except in distressed areas like the Platinum belt.

    Remember, things change quickly. Ramaphoria showed us all how quickly our perceptions become our reality and what an impact that has on our behaviour. The Rating Agencies are holding their horses, Tito is making very positive noises, the Nugent Commission is drawing to a close with an obvious outcome and the SARB has inflation on the side for the time being. Election 2019 will take place and I believe, is predictable. To not have that view is not an option to me.

    Things are positive and if there was any relaxation in the Emerging Markets drama, it would augur well for SA Inc. Look up, it might be sooner than you think. Whatever the case, HLJ continues to be in the market and there for you.

    Yours in Property.

PROPERTY NEWS

/in /by

Just for a change, I have posted an article that appeared in the latest Standpoint which is compiled by Stanlib (Volume 4:15 October, 2018) for their clients. The article is not solely about the residential property, but it gives us such a good overview of the property industry and serves well to make the point that economic growth is at the heart of everything we need in our country. Enjoy!

“Large-scale investment to develop and redevelop SA’s ageing property stock into modern premises for today’s high-tech businesses will only occur once economic growth is on a firm footing. Compared to many other countries in the continent, SA has a large and diversified pool of property, but a large portion of it is old and outdated, especially in the office and industrial sub-sectors.

Industrial property in general is not looking healthy, with the exception of warehousing. SA’s manufacturing sector is in the doldrums, because of slow economic growth and its dependence on Eskom’s costly and erratic power. Even specialised manufacturing nodes – such as a group of interdependent automotive businesses in close proximity – are seen as risky, since the collapse of one company can affect all its neighbours.

Taking a long-term view, SA manufacturing will recover, but investors incur opportunity costs by holding onto industrial property for five to six years until an upswing materialises. In the meantime, fundamental structural changes are taking place. Most of the activity in industrial property is due to shifting, not growth, as successful businesses move out of older properties that were not designed around information technology infrastructure. Older properties are becoming redundant.

Warehousing is sought-after, particularly for logistics businesses, but the demand is for more than simply a shed with a corrugated iron roof. Modern logistics requires laser-levelled floors and automated floor space. The most popular areas for logistics businesses are around Cape Town, Johannesburg and Durban airports. In Johannesburg, the prime area is along the R21 to OR Tambo, where both listed and unlisted family businesses have been active investors and developers, including companies like Fortress and Equites.

Retail property still offers specific opportunities. Of the four main retail categories – super-regional, regional, community and neighbourhood – the growth is in community retail centres. These include Nicolway, Morningside Mall and Benmore Gardens near Sandton, which provide quick shopping for people in surrounding residential areas. They can be convenience centres and sometimes even regional malls like Cresta, which is surrounded by high-density residential units and has little competition from smaller shopping centres, but super-regional and regional malls in general are battling, because they have a significant fashion component dependent on a strong economy and, because the global trend is towards shoppertainment.

Some of the newer malls like Cradlestone, Forest Hill and Mall of Africa have not yet seen sufficient residential development in their vicinity. Another trend evident in Mall of Africa’s design is the “work, live and play” trend, which means it can satisfy most of the lifestyle needs of residents in its catchment area, but some of the older malls have limited options for redesign and may have to be completely repurposed into hospitals or residential property in the next few decades.

Like industrial property, most of the action in the office sector is due to shifting rather than growth. Blue chip clients like Sasol, Discovery, Webber Wentzel and ENS have moved from older or scattered properties to centralised A- or P-grade offices in Sandton. These are usually “green” buildings with a focus on energy efficiency and recycling. In Gauteng, Sandton and Waterfall remain the most desirable office nodes while in Cape Town it is the Waterfront. In SA’s other urban centres there are no sufficiently sizeable office investment opportunities for institutional investors like STANLIB. We don’t see any revival in demand for the Johannesburg CBD, except for government and residential occupancy.

It will take sustained GDP growth to re-activate the whole office sector, from P- to C-grade. Businesses do not expand and hire new staff until they are certain of growth prospects. So we don’t see a recovery in this sector for several years. Much of the B- and C-grade space is becoming obsolescent and will have to be repurposed, although several of the SA-listed property stocks have a residential component. The only focused residential share is Indluplace Properties. In the residential sector, the main investment opportunity remains townhouse developments. There are some companies that specialise in sectors like student accommodation but they remain very small and student rentals are perceived to be risky.

Rapid urbanisation is not an investable opportunity because of the lack of jobs in SA’s cities. Although there is certainly a demand for low-cost housing, there is no income stream to incentivise large-scale private investment. SA GDP growth of at least 3-4% for a sustained period is needed to re-ignite property development. The earliest sectors to respond will be retail and warehousing and the latest will be office and industrial property. We continue to expect a total annual return (capital and income) from our property portfolios of about 13%, in line with the average of the last 10-15 years.”

Our kind acknowledgements to: Ahmed Motara (Listed Property Portfolio manager) and Lawrence Koikoi (Listed Property Portfolio manage)

I really enjoyed this article. It gives a drone-view of what’s going on and enables us to consider our actions going forward. It is factual rather than negative or sensational. We all know the truth that economic growth is at the heart of what we need. Bill Clinton was right in his campaign: “It’s the economy, stupid.” I remain circumspect, but grateful for the effort our President is putting in in this regard – strength to your arm, Mr President.

And secondly, I was seriously impressed with the following announcement by ABSA. Can you imagine what it would be like if a PPP could pull off anything close to this!?

 

“Dear Stakeholders,

Announcement: Absa’s position on Land Reform

We have noted the ANC’s announcement that it will propose an amendment to S25 of the Constitution in order to facilitate land reform and redistribution. We recognize the legacy of the past and the need to address the inequalities in our country. We are fully supportive of land policy and legislation that fulfils the intent of our Constitution and address the need for land among many South Africans.

We must also emphasize that this must be done in a manner that balances the needs of current and future private landowners, beneficiaries, government, the financial sector as well as its stakeholders.

We have noted the ANC’s undertaking that its proposal is for land expropriation to be done in a manner that doesn’t undermine the economy and that increasing agricultural production and food security will be a key priority.

Absa has made its own submission to Parliament after commissioning extensive research on the matter, including taking legal opinion on the efficacy of S25 of the Constitution. As a consequence, we do not believe that a constitutional amendment is necessary. Instead, Absa has identified five key areas through which the bank can make a meaningful contribution towards a sustainable land reform agenda.

These are:

1. The establishment of a special rural land reform fund, which would be funded by financial sector players and other organizations. The main objective of the fund would be to establish a new black commercial farming class.

2. The establishment of a special urban land reform fund. The fund would be geared towards building an affordable housing market that improves the affordability of urban housing and facilitate urban densification efforts as well as inner-city rehabilitation processes. It would also focus on creating a bigger class of black property developers.

3. The establishment of a land administration agency, a public-private partnership. Its priorities would include auditing the productivity and use of land which has been transferred through land reform and re-engineering the cumbersome processes through which land restitution claims are assessed and settled.

4. Support for the development of a new land administration system for the design and piloting of a new lands records system. This is especially important in former homeland areas where administration systems are not existent.

5. Driving a national dialogue for a new land policy white paper. There is a need for a new land policy White Paper that would culminate in an agreed national land policy.

We now await the outcome of the Constitutional Review Committee’s consultations and the rest of the parliamentary process before we can determine our next course of action.

Kind regards,
Geoff Lee
Managing Executive, Home Loans”

 

Never lose hope. Die hoop beskaam nooit. Translated – You’ll never be embarrassed by hoping for the best.

Yours in Property.

RESILIENCE PREVAILS

/in /by

Sitting down to write this blog, I need to pinch myself at the state of the market. It really has proven resilient and prevails despite the much bad news. In its August Origination overview, ooba states that: “Application volumes for August 18 were 4.3% higher mom and 10.5% lower YoY.” That’s very good against the news, and just a fraction higher than the previous number of about 8.5%. So is the market slowing? Yes, but it is proving good against the backdrop.

In turn, ABSA: Household credit and mortgage advances: 28 September 2018 states that private mortgage advances have grown at 4.4%. The implication of that is that house prices have remained around that level, as we know, and little has happened to the volume of transactions. I know I’m broad-stroking this information, but to bore with the details is not the point of this blog. All I’m trying to say is that things are holding up well under the circumstances. If you agree, the question then is what’s going on?

We have an Emerging market meltdown with one of the most traded currencies in the world. From its best just after the President’s election of mid-R11’s to close to R15 today, the Rand has certainly had a run, but seems to have settled in the R14-15 range. Yesterday’s headline in the Sunday Times, “No, No. Nene” and news that has just arrived of his impending resignation is off-the-page bad, but we’ll probably know by the end of the day. Man, I can’t help feeling the wrong guy is being taken to the gallows especially after reading his letter of forgiveness. He’s got mine, for sure – what a man to have stood up and said “I was there”, but then he got fired for saying, “No nuclear!”. The wrong guy is falling and the ex-President is lounging at his fire pool. Flippit and the Poor suffer the rap of the markets and the currency. Unbelievable!

Unless I’ve missed it, the SOE’s seem to be on somewhat of an even keel. I’m really not sure how Eskom has staved off bankruptcy on a R20bn loan from the banks. It needs R60bn to be paid by errant municipalities, probably the same lot that are letting sewerage pour into the Vaal, but that money won’t be coming either, but somehow, it and SAA still seem to be flying. Understanding a little of SAExpress, they seem to be spluttering to lift off as well. Good on you, Pravin; we appreciate your 18-hour days. Politically, we now have some sort of inquiry into attempts to remove CR. Politics is dirty at the best of times and despite the “No, not me?!”, it seems our President may be flexing some muscle. We’ll see as Election 2019 approaches with speed.

There is so much more to state and speculate [which most of this really is, in all honesty], but the one thing I enjoy is that everything is in the open in a free Press. I’m sure that much takes place in cigar-filled lounges out of the public eye, but the view from the tip of the iceberg is still perspective-enhancing. Much better than having nothing, with State-owned channels and Press pumping out lies. Instead of meandering, let me draw to a close. What has all this got to do with the property market?

The market is holding up against an avalanche of counter-market news. Resilient to the core, good men and women are buying and selling houses and I note that Africans, some 64% of transactions in the ooba data, are spending on property. There is a barrage of bad news, but in many parts of our country, it is business as usual. Is it the edge of a precipice or the foundation for gradual success? I like to think the latter. Someone who lives in our town was quoted as saying, “I’m not an eternal optimist, but I am addicted to hope.” Maybe, I’m just like the Archbishop Desmond Tutu, an old optimist despite the evidence. Where are you in the continuum from despair to hope? One thing is for sure, wherever you are placed, so are those around you; those dear souls “feel” your energy every day – positive or negative – you rub off on them.

Yours in Property.

PROPERTY OVERVIEW 9/2018

/in , /by

“Sorry, seems to be the hardest word.” That’s how the song goes. But in my last blog, I said sorry for over-estimating the rise in Joburg prices this year and the GDP growth of the country :-(!

Let’s have a look at the property market in this blog.

I still think that we’re being let off the hook and things are going fairly well given the dire economic news we read every day. My opinion tries not to be scientific so a lot of gut-feel goes into that statement. In addition, I live in a small, upmarket town which has had some raw land-delivery protests in the recent past and this, together with talking to contacts who are steeped in national property businesses, I’m sure colours my view. As you read, you may have a different perspective so let me know if you differ significantly.

Some insights:

  1. FNB’s John Loos, in FIN24.com on 4 September 2018, informs us that “the majority of home sellers (96%) have to drop their asking price in order to sell the property” in the Q2: 2018, according to the latest FNB Estate Agent Survey. “This is up from an estimated 91% reflected in the first quarter survey and compared to an estimated 78% who ended up having to lower their asking prices in 2014. He says the survey evidence suggests that asking prices on average have become less realistic in recent years. The estimated magnitude of asking price drop needed to make a sale became slightly larger – from -8.2% in the first quarter of 2018 to 9.2% in the second quarter”. And finally to this point, “FNB has not seen any noticeable increase in the percentage of properties resold at prices lower than the previous purchase price. About 9.6% of total properties resold in July were estimated to be at lower prices than the previous purchase price. This is higher than the 8.7% of May and 8.9% of June.”

    The word “realistic” is loaded with sentiment, the seller’s state of mind. If my home must be sold at less than the purchase price, about 10% per the comment above, that’s stressful. Making a capital gain of less than inflation is going backward fast especially given all the costs of selling and re-buying or renting. Making no gain could best be described as a stress-sale. On the other hand, in some parts of the country, 10-15% gain almost per annum, has been the order of the day. No more and my friend in Cape Town says that “to drop a Million on your price” is the nature of house sales at the moment. So, would any seller drop the million before selling? I don’t think so. You’d do that when you are a serious seller and see that no one is coming through your door. Getting the price right depends on the seller’s desire to sell. We have a house nearby going for R12.3m which has been on the market for about 6 months. It’s not going to sell even on a lucky dip and the price indicates seller reluctance.

  2. On the other hand, in a place like Hermanus what would be the price of this seller’s house? My guess is about R10m. Why a guess? Well, the market has definitely received more stock given the recent unrest which, as we’ve discussed before, is very in-your-face in a smaller town, so the outworking of these sentiments remains to be seen. The jury of potential buyers is out. Linked to this and for interest sake, the EFF held it’s Provincial Conference in Hermanus last weekend over three days. In the Zwelishle Primary school hall, the conference was orderly and had very little impact on the town. On Sunday, Julius held a rally at the sports fields and that went off peacefully as well. We’re grateful and trust such behaviour continues to pervade the run-up to the elections.
  3. Another aspect of the higher asking prices is that sales are taking longer to conclude – about 50% longer depending on where you read. 40 days on the market has moved out to 60 days overall. Again, I bet you the unrealistic expectations of sellers have contributed to this situation. What would be really interesting to see is the number of houses listed and then withdrawn from the market. That trend would tell you how needy the sellers were to sell for whatever reason. On the face of it, “I can’t afford my house anymore” should be rising as the economy remains very sluggish and jobs become more insecure, thus reducing confidence.
  4. Sadly, allied to the “I need to sell” category is higher levels of emigration. One can read very valuable information from the FNB Barometers covering this aspect, but perhaps the most interesting for me is that Police Clearances have moved out from about 6 weeks to 12, and even 15, weeks.
  5. One aspect that drives much of this conversation is the rate of interest and the desire of the banks to lend. The former stayed level last week as SARB, I am sure, attempted to supplement President Ramaphosa’s stabilization package and his envisaged stimulus mega-fund. On the other hand, the banks seem to still be saying Yes to lending and are thus a welcome part of the answer to growth; long may that be! On the absolutely negative side is an apparent helluva increase of petrol coming soon. What a tragedy that the tax on fuel and the VAT increase [which by estimates then, take R29bn out of consumers’ pockets], is simply the penalty of corruption under the leadership of the ex-president and his cronies. Imagine the same increases being ploughed into the Investment Mega-fund for housing, schools, and tourism! What a country we could have!

In summary, we are better than we could have been, in my humble opinion. I often say that as I write and then qualify myself by saying that I genuinely believe that. I have lived through terrible recessions, and this for all of its insidious undercurrent of large-scale theft, is not “terrible” in its outworking. Granted, these are not the “ol’ days” pre – 2008, but they could have been much, much worse for the property industry. My encouragement, therefore, is that we vasbyt. Reiterating my previous blog, our President can pronounce R400bn and maybe we don’t know where it’s coming from but from what I hear from his United Nations conversations, he has acquitted himself well. Remember, it was not long ago that Pravin Gordhan was called back from speaking to investors with R5tn in investment funds on the pretext of a one-pager spy accusation which resulted in Gigagupta being appointed in his stead – WE’VE COME A LONG WAY IN 2018!!!]

I learned an Afrikaans idiom the other day, “Die hoop beskaam nooit.” For the uninitiated, “Hope does not disappoint” [Romans 5:5], or, “Hope does not embarrass you.” On the contrary, hope rubs off on those around you. Enthusiasm is hope internalized and expressed. Remember, if you’re happy, tell your face. We are all more beautiful when we smile and “smile lines” are never wrinkles 🙂

Yours in Property.

SORRY

/in , , /by

Earlier in the year I stuck my neck out and said that Joburg would show an 8% notional increase in house prices and implied it would be hot property news. Not so, I’m afraid. Sorry. Then, I stuck my neck out [with the IMF as I’ve said in a previous email], and said we’d grow at 1.7%. I was only out by 1, but that’s the 1 in the front. Drat! Another Sorry is due. So before you stop reading and call me a Wuzz, give me a break.

You see, we’re not in technical recession, the first time I heard President Ramaphosa (CR) say that I thought he was taking advantage of the latest weed laws, but then, Roelof Botha, ex-RMB, who I have always considered at the top economist in the country, was reported having the same stance. So maybe, CR has been sticking to Johnny Blue on his Fresnaye property’s stoep. So without boring you with the details, the numbers are skewed by Agriculture in the main, and what remains is some other drought-stricken technicality. All of that said, we should pop out of technical recession fairly soon and recover a tiny growth this year.

Now let’s see why Growth with a capital “G” is on the cards. 

Firstly, the SARB held rates recently and that is good news for our ailing economy. Remember, they walk a tightrope, because the Bond investors love a big differential between the Bond yield and their own country’s interest yields, adjusted for inflation and the Rand volatility. In simple terms, if you don’t raise the rates and the risk of doing business increases for whatever reason, then money flows out of the country. Big risk, but well taken given the current slowdown in our economy. In fact, a complementary decision to my next point.

So, secondly, our President has announced amazing benefits to our economy today. I am so excited even though we know we need far more. On the lighter side, #paybackthemoney would provide more than enough to stimulate our economy; just seeing someone go to jail would really lift our spirits. So again, I have no desire to go through all the details and, if truth be told, I have no idea where we find the money, but a stimulus of R50bn to “stabilize Education and Health Care” is seriously welcome and R400bn to really stimulate the economy is a mind-blow. So much stimulation in one day could be bad for one’s heart; but, thank you, President Cyril and your 10-person Advisory Board, you’re going to announce in the next few days.

We’ll cover a tiny bit of the details, the rest being your homework, but seriously, I cannot tell you how amazing it is to see a President, obviously trained by Pravin Gordhan to read teleprompters, reading a huge economic breakthrough and flawlessly enunciating Four Hundred Billion Rand, that’s R400000000000. So glad the author of 400…Rand…million, billion, ten…he, he, is no more.

We need stimulation. Money flows of private citizens offshore feel to me to be at record highs. People are leaving all around me – kids who comprise our future being snapped up for their artisan, IT and teaching skills. Out there are countries building countries on the back of our young, competent families and I feel like putting my finger down my throat when I think of the loss just when we need the skills the most to rebuild this beautiful, tortured nation, but at least we have a President who sees the issue and has the gravitas and presence to rectify the problem, albeit, over a very long period.

Healthcare needs stabilization. The Minister of Health should have declared a crisis a long time ago, but at least, finally has some money to spend. Heaven knows we need it well spent on priorities that benefit our people. Please don’t steal our hard-earned cash and don’t turn a blind eye to those who would! For education, desks and toilets would be really helpful. Make the former out of recycled plastic and achieve a double whammy. Then, for the latter, build toilets with septic tanks where you can’t easily access a sewerage pipe. For goodness sake, [I heard a guy on CapeTalk saying the sewerage pipe was 4 kms away so they could not give a school a flushing toilet.] Really??!! I used a septic tank in Amanzimtoti for years, because we had no water-borne sewerage and what about every farmer in the country?? Imagine a civil works programme that dug and kitted-out septic tanks at schools using recycled water and then teams of guys keeping them in working order? Now there’s a project worth doing.

So, in the R400bn, is a mega-fund for Infrastructure. Just to put that in perspective, a year or two ago, it was pointed out on 702 that the market capitalization of Mr Price was more than the entire Construction industry. So a company which imports clothes from China and sells them to us is worth more than Basil Read, Grinaker/LTA {Aveng], Group5, Murray and Roberts, and WBHO [the only one making money at the moment] combined. In fact, the shares of Aveng, two massive companies that we grew up with, are currently 4 cents, I am advised. How do we get to this position where the industry would probably battle to revive such is the job-bleed? Well, firstly, you steal from the SOE’s and then you take all the taxpayers’ money and spend it on salaries in government and what do you get? People affording millions of t-shirts, but no repairs of sewerage works and no building and maintenance of roads. It’s called selling your childrens’ future and is great for failed-state ignominy.

So am I depressed? No, very upbeat that we have a President who can recognise the problem and before he jets off to the United Nations and presentations to global business leaders, can announce our best shot at economic revival. His intellect, business acumen and sense of resoluteness is just a breath of fresh air. I’ve said many times before, my faith lies way above him, but if you offered me these packages announced this week and the Zondo Commission in November last year, I would have been amazed at your largesse.

Where does that leave us? As Homeloan Junction we work tirelessly to provide a consistency of service and interface with the banks that surpass expectations. We don’t always succeed we’re sure, but we press on. The wonderful thing about business is that one hand washes the other in a virtuous cycle. As I serve you, you serve me and we serve our customers. Together we do more and everyone wins. From a political perspective, we try our best to encourage each other to lose the “noise” and focus on the good in the system. The initiatives above are good by anybody’s standards and we hope they are implemented and bear fruit – jobs, upgrades, service deliveries and municipalities that work again – for all of our People. We will press on and we and we invite you to join us. We’re not Pollyanna’s, we understand the crime and grime, but we are determined to put in a solid day’s work for a well-earned reward, productive in the knowledge that we know what we are doing and we do it well.

Success to you, our readers, as you take the good, park the bad, and move on to success. We appreciate your support.

Yours in Property.

MAURITIUS 2018

/in , , /by

I am on a plane to Mauritius. How privileged am I to be included in a group of Homeloan Junction and Ooba Winners who have shot the lights out in 2017! I did nothing, they did everything to be here.  We have first-timers, people who have never flown internationally before. We have golden oldies, those who have won over and over again and now, have won again. Each has their own story so let’s explore that.

In my management career, I have met winners at the airport.  The most excited are those who have never flown before.  They are nervous to the point of fidgety; will I be safe,  will I return to the one who kissed me tenderly at the airport? Of course, you will say the initiated – just enjoy the flight. Light-hearted, but also caring. And then there are those who are used to winning; the die-hards who have done the hard yards, amazing people who have been consistently successful over years, even decades.  Amazing that!  To do it in one year is good. To do it over and over again takes a different story completely.

So, over the next two blogs, here are their un-named stories and a summary of their critical success factors…

“Success is what you believe in”. Perhaps this is a crux of the matter as I look back on the people I met in Mauritius. They are confident and assertive – there is an air of success about them. They know what they know and find themselves often in the company of winners. You can see it in the way they interact and hear it in their language as they speak to others and together. There is a balance of affinity, distance and a professionalism that is pervasive. They know how to have fun as well; they laugh easily and play appropriately, but they overdo nothing and enjoy the moment. You can just feel, these people believe in success.

“Perseverance and long hours”, says another. Some of this team know what it takes to work 18 hours a day. From early in the morning to late at night, administration with constant calls in between, they set to the task of satisfying customers. You know what it’s like – the young couple have bought their house and they’re starry-eyed as they await bond approval. The estate agent has done the sale and is counting the commission. The developer needs 70% successful sales/bond approvals for the development loan. You have your own office costs and need to build relationships. Little wonder that perseverance and long hours are needed, not just in the short-term but as a daily habit. We all know that over time, this hectic pace dissipates as a general rule, but every now and again, the need for huge effort raises its head. These winners have ceased wondering when it will stop; instead, they lift their game when required, every time.

“Niks, I just go with the flow.” I know this lady well and she is not a Niks kind of person. What has happened here is that decades of service have done two things – cemented relationships, and generated repeat business as a significant part of her income. She did the hard work years ago and has skilled herself through thick and thin to deal deals with the estate agents and the banks. She knows her oats and doesn’t submit what will not be approved; she’s efficient, values her time and that of others. On the other hand, if anyone in that process disagrees, they could cop the lip that comes with 20 years of experience. For the uninitiated, the matter of apprenticeship comes to the fore. You don’t study to do homeloans and your BCom degree means little if it has not taught you some property law, finance, credit, banking, administration management and then overlaid that with huge dollops of inter-personal skills. You don’t get to quip “Niks”, if you haven’t done the “Baie”.

Relationships are built over years. It is often said that a relationship takes years to build and seconds to destroy. I would add that where money is involved, that formula speeds up. Making my money through consistency and quality of work is good for relationships; a kind of “spice on the top” of commercial associations. But one lie, one un-met promise, or, one poorly managed expectation, can turn your relationship into a nightmare. By the way, but for the first malady which can often be terminal, the others can be dealt quite efficiently by what I call “emotional reserves”. These reserves are built over time and can be likened to a petrol tank’s gauge. Trust, care, friendship, efficiency, feedback are all ways to build emotional reserves that fill the tank of a relationship.

A mistake may use up some of the supply, but can be accommodated from the relationship’s reserve. This may sound a little “soft” but all relationships, personal and business, where emotional reserves have been built up can then be used, by saying sorry or committing [and keeping the commitment] to do better next time. Winners manage expectations and then even in the face of bad news, have a positive approach to an outcome. How often have I myself, told a customer they are flying high in terms of their credit request and then managed them through the decline of the bank to a more realistic application. By the way, another thing here is the question of credit terms. A customer’s lack of knowledge of banking can lead to the question, “Will you get me the best rate?” My answer, “No, but I will get you the best credit terms.” What is the good of Prime – 0.5% with a deposit of R100000 if the deposit does not exist or, was destined to be used for TLC of the property? Prime + 1% may be far more acceptable with no deposit under these circumstances. Don’t get caught up-front in pricing as the bottom line of your service; you’re better than that.

“Origination is entrepreneurial and gives you an opportunity.” I guess this goes for any self-employment though it never feels like that when you’re building your business. But as the years go by and your competency and relationships strengthen, origination is a really nice business to be in. It gets you out, gets you in, and gets you going. Office jobs are crucial to service delivery, but marketing gets you face-to-face with the customer and interface with the stakeholders; it gets you out. It gets you in, into suppliers, interesting projects, opportunities for value-adds and serious negotiations. These are the places where long-term, solid relationships can be built and sustained. And, origination gets you going; every day and continuously. Perhaps one of the cutest comments in my interviews with the winners was simply this, “I won’t change my job!” Not for anything; that entrepreneurship and opportunity talking and from behind a broad smile.

On the other hand, it takes a “wild ride” to leave a stable job and come into this crazy world of property and bonds. None of the winners found it easy but they figured that origination, with its value-adding benefit to the customer absolutely free-of-charge, was the way to go. “I wondered how I would survive” was almost common to all the newbies in Mauritius. It takes a strong cocktail of self-belief and courage to walk away from the known into the unknown. Just like any business venture, you will have days of doubt and days of elation, but what our winners know by their success is that “origination is for me.” Just a point on the taking and managing of risk. Consider the risk carefully, consult wise counsel, be fairly sure of your ability to succeed and why. Wait to build the skills and/or contacts if you do not feel ready, but once you jump, then begin to manage the risk.

Start within with positive self-talk and surround yourself with winning combinations of people and processes so that you give yourself an undisputed chance of success. Like the old saying goes, “you can’t fly like an eagle with turkeys like these.” If that’s arrogance talking, get off your high horse, nobody likes a smart-ass, but if you do not have the right people on the bus, get the right people – you can go out and compete in the marketplace every day but you better have a strong, competent team behind you. You cannot fight a frontal and a rear-guard action at the same time. Think about this, it’s absolutely true. Indeed, a critical success factor.

More to follow in our final part to Mauritius 2018…

Yours in Property.

QUO VADIS? (Where are you going?)

/in /by

The extract from FNB’s Property Barometer for July 2018 below leaves me posing the subject’s question.

We started out so positively with Ramaphoria taking hold of us, our stock markets, Rating Agencies and the property market. The other day, I read an article in which this term was called Ramaphobia by mistake; it could have been a Freudian slip.

Here is the extract:

“While periodic fluctuations in economic growth could see transaction volumes growth turn positive from time to time, the consistently negative real house price growth since early-2016 leads us to believe that economic growth rates of 1%-1.5%, along with very little interest rate stimulus, are not sufficient to create the level of housing demand that can mop up oversupplies, balance the market and lead to positive real house price growth.

With 7 months’ worth of house price data available for 2018, it appears increasingly likely that average house price growth for the entire 2018 will come in slower than 2017’s 4.3%, and we now forecast an average price growth of 3.5% for this year. This is based on a GDP forecast of 1.3% for 2018, which is unchanged from 2017. The Firstrand Economics team sees slightly faster economic growth in 2019, to the tune of 1.6%, translating into a slightly faster average house price forecast of 3.7%.

Given what we have said about economic growth is insufficient to balance the housing market better, the theme through our forecast period is one of low single-digit house price growth, underperforming CPI inflation, which will translate into further real house price decline”

I cannot argue the FNB view based on current evidence and they may prove right in their forecasts. I did not have any other banks’ reports at the time of writing, but I doubt they will contradict the thoughts above.

So where did things change and what is positive at all in our current predicament? Firstly, the World Bank’s forecast of 1.7-1.9% growth in GDP was no doubt based on positive views of SA Inc. It was mirrored, though slightly muted, by the banks. Then we had real positive noises around corruption and repatriation of stolen funds. This has proved difficult. Then we had confidence that CR would be able to quickly consolidate his position and make real changes to the ANC whilst retaining unity, but this is obviously not possible and compromise rather than decisiveness has hallmarked CR’s Presidency thus far.

Are you miserable and beginning a self-prophetic downward spiral or do you remain positive against the odds? I am not Pollyannaish and I understand both views. However, just before you decide on the former, here are some initiatives that we thought we would not, or never thought we would see:

  1. The July inflation was 5.1%. That makes the HPI real growth negative; about  -1% to be more specific. But, two points on that – the price of petrol caused the inflation increase, practically, nothing else. Secondly, the SARB will not raise interest rates in such an environment and, more particularly, in the face of an election. So I believe, interest rates will not rise despite the Rand decline.
  2. The Zondo commission has kicked off to investigate State Capture. Thulii Madonsela cobbled State of Capture report together just before she left office; thank goodness! Now the commission is in place to investigate and report on the phenomenon. Be warned, the commission will only then recommend NPA intervention to investigate and prosecute offenders. We thought 6 months would be enough – trial-by-Zumaleaks, but that was never going to happen. Remember, we function under the rule of law and a Constitution. Be grateful this is not the Wild West. Should we toss that out, then anything goes. If you gave me the Zondo Commission taking two years to conclude in November 2017, I would have taken it gratefully.
  3. I saw some of my ex-Nedbank executives on Carte Blanche talking about how they were dismissed en masse at SARS. The Nugent Commission has now heard so much corroborative evidence that Tom Moyane and his management ravaged a world-class tax collection agency by reconfiguring the organization, that the Evidence-leader called for dissenting evidence – there has been none! I saw in the paper today, that Bain Consulting, who we from Nedbank know well and who were paid R200m for their opinion, consulted on the restructure. It remains to be seen whether they and KPMG gave SARS top brass the ammunition to reduce the organization to a corruption-friendly entity. We will see. Again, if you’d given me the Nugent Commission late last year, I would have jumped at it.
  4. The Investment team that CR put in place must have terrible headwinds presently, but they are brilliant individuals. Strength to their arms!
  5. SARB has challenged the new Public Protector’s report on their existence and won. In the face of the EFF’s tabling of a SARB nationalization Proposal to Parliament, they still remain completely independent. I must believe that will not change.
  6. The Minister of Energy and Minerals, Gwede Mantashe, has withdrawn the Amendment Bill to the Mining and Minerals Act. Great news and somewhat reassuring for mining investors. Remember, Zwane from Bloemfontein was a Gupterite and introduced the Bill amendment. One of the key provisions was that the Minister could direct to whom product could be sold and what beneficiation should be pursued. Who do you think would have benefited??
  7. Government is beginning to deal with Social Equity. I think their methods suck and telling me the Constitution’s clause 25 will be changed while we wait for the analysis of the 149000 submissions submitted to the provincial hearings on this matter, does nothing for my confidence, but we need to deal with this; let me say this again, we need to deal with social equity. In the meantime, Adam Catzavelos covers us in shame – what he said and posted was a disgrace. How is that we manage to take one step forward and then shoot ourselves in both feet?
  8. The CEO’s are better managed now than for the last 8 years. Can we save them all? I have no idea, but I would back Pravin to do his best.

You see, not everything is negative. Like you I’m worried and I would be lying to not admit it, but we have a number of positive things happening and we need to hang onto these. You see, whether you are positive or negative, “it” will happen, but I can guarantee you, what you do with the outcome will depend on your going-in attitude.

Yours in Property.

PROPERTY MARKET: WHERE ARE WE?

/in , /by

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

/in , /by

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.