I emailed Vincent the other day to ask for blog titles. Given the news and views in the market at the moment I’m scratching my head for subjects.

I really enjoyed writing the Land series. Its foundation, its worth and why, and the proposals which unfortunately seem to result in an inevitable amendment to Section 25 of our Constitution, were really interesting to uncover. I had no feedback from anyone but I hope you found it an interesting journey.

You read every day about slow-moving house prices but I’ll make a few points from some recent research papers. Before I do that, I’m going to refer to an article [I cannot find it, for the life of me!!] that I read about the Eastern seaboard house prices. Many examples of recent listings or sales were mentioned by a leading estate agency brand where prices have been slashed, but like R27m to R15m and R37m to R25m slashed, with two interesting conclusions. The first was the sensationalism of the price cuts and the second, the bargain-buying opportunity. The first was “sensational” to say the least – a statement of fact with pictures of these beautiful homes at early-2000 prices, and an amazing interpretation of why the prices have been drastically cut, some of it economic and other social reasons but nothing too serious. But then came the “reason to buy” and “this is your last chance at these prices” section which was spin of the highest order. The bottom line is, if you don’t buy now you may never be able to afford that house again. So com’on, buy now folks while they’re dirt cheap! It reminds me of someone prepared to pay R37000 per month for an apartment in the Waterfront that was worth R22m. That’s a 2% annual return for the owner on the face of it. But really, who have R15-R25+ million to spend on a holiday home? What would the “bargain” house really give you on Air BnB? And what about the service and maintenance costs on the edge of the sea? The reason for the collapse [because that’s what those restated prices represent] is cost of maintaining a second property in the prevailing economy and, I’m sure, the property risk of ownership in SA given EWC fears and even the desire to emigrate to get away from it all. And finally, as I read the article, it was blatantly obvious to me that the Rich are getting poorer in Rand terms but they still had assets to be seen to play the high life.

Really a telling story whatever your opinion or station in life.

Back to the realm of the normal……….

Standard Bank’s Property Research on 6 August 2019 is titled, House price growth still constrained, has a few pointers:


  • House prices slightly accelerated to 3.9% y/y in July from 3.8% y/y (previously 3.7% y/y) in June. Nevertheless, when adjusted for inflation, house prices moderately declined 0.5% y/y (using July’s inflation forecast) after declining 0.7% y/y in June. Year-to-date, house prices have only increased by 4.1% y/y compared to 5.6% y/y in the corresponding period last year. What I read from this is the good news that house prices are continuing to rise even though the upper-end market is being ravaged by price cuts.


  • The national median house price was R1,017,041 in July (from R1,009,641 in June), with the Western Cape median house price 37.4% above the national median house price at R1,394,298. In Gauteng it was 3.8% below the national median; KwaZulu-Natal 4.8% above the national median; and Free State, 27.9% below the national median. Fair to say that the Cape still carries a premium to the rest of the country which it has built up over decades of good management and almost-unique scenery.


  • Our view is maintained, real house prices are essentially still moving sideways, and we still see a lack of robust growth in the near-term. At the moment, tracking inflation is as good as it gets but inflation has always represented a bad investment and we all know, above-inflation is required to maintain our status quo. You could certainly have done better in Bonds or Preference Shares over the last 4 years or so.


Standard Bank, as usual, makes some very interesting points though:

  • The 0.25% interest reduction may not do anything to house prices but it’s a damn side better than an equal but opposite increase.


  • The cut is not sufficient to overcome the undermining of confidence caused by our politics, but it does serve to remind me, as does his re-appointment, that Lesetja Kganyago, the SARB Governor, is a pre-eminent resource in our country.


  • This [the above two points] is further reinforced by the rising unemployment rate and the bleak prospects for employment and economic growth. To put it into perspective, when the unemployment rate increased to 29.0% in 2Q19, employment for those between ages 25 – 34 declined by 72 000 y/y, and for those between ages 35 – 44, declined by 59 000 y/y. Arguably, these are the group of people at a crucial stage of their lives who should at least be purchasing their first homes or already paying back mortgages. These statistics struck me as powerful. As much as we talk a better life for all, the “all” that matter most in home ownership are being deprived of this basic investment. This is unfortunately not a zero-sum game – those deprived of buying a home economically demand a home from taxpayers who just can’t cough any more than even that required to keep SOE’s in business. The American Dream taught us that if you want people to own a home, give them quality work and then watch the virtuous spiral that results as the economy literally catches alight with developmental activity.


  • Regrettably, this is not a short game. World economic growth prospects remain mired in Trade Wars and Immigration issues which have precipitated the likes of Brexit and its disruption in Europe. Down here, I’m always reminded of the opportunity cost of the inward focus [political warfare and lawfare] of our parliament who are our representatives who serve to drive the nation forward. Leaders, don’t underestimate your cost to this nation and her childrens’ children!


  • To this point, Standard Bank has a revised forecast of 0.6% this year.


In case you think I’m negative, I’m not. Like the article I alluded to earlier, I could say this is a good time to buy buy-to-let flats from mortgage-distressed sellers but I’ll spare you the “charm”. But this much I will say, given that we have the dire economic issues we have, given that our currency is one of the most open and therefore most traded currencies in the world, and given that Moody’s have issued warnings to us, we have done a lot in this year of which we can be proud. Regrettably, those initiatives are backward-facing and building from a “hollowed-out” basin of human capital with integrity, but they have been brave and courageous initiatives by gutsy men and women.


“Never give up! Never give up! I say, Never give up!” said Winston Churchill to schoolchildren in his finest hours.


Yours in Property.

Jack Trevena
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