QUO VADIS? (Where are you going?)

QUO VADIS? (Where are you going?)

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.

Jack Trevena
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