THE CONFIDENCE ELIXER
It is not profound to say that good news is better than bad news but, my goodness, the statement in property that there is some good news is very profound. The reason, as we’ve discussed many times, is that Confidence is the primary yeast of mortgage book building and mortgages mean house sales. In addition, in this blog I have nailed my colours to the mast and said that Gauteng is on the verge of increasing house price movements. Good news, obviously followed up by business activity, will change the shape of Gauteng house prices. The sleeping giant will arise in my humble opinion and, in turn, Cape Town will slumber for a season. In the former, house prices are too low to represent value and in the latter too high to represent value. Put incredibly simply, selling a house in Joburg and trying to replace it in Cape Town is well-nigh impossible. I have two friends [sad hey? – just joking], who are experiencing this big time; the one Joburg to Cape Town and the other, even in KZN’s North coast developments.
This trend is highlighted in the latest FNB Property Barometer: 1st Time House Buyers. John Loos reports:
“We find Gauteng still to be the strong 1st time buyer region on the one hand, and Cape Town to be the very weak 1st time buyer region on the other.
Greater Johannesburg had an estimated 1st time buyer percentage of 21.59% for the 2 quarters, and Tshwane Metro a massive 30.75%.
In the 3 major coastal metros, Ethekwini Metro had the highest rate, i.e. 20%, Nelson Mandela Bay a weak 10.5%, and Cape Town Metro a very low 6.46%
These major divergences partly reflect diverging home affordability trends in recent years. We believe that slow house price growth in Gauteng over the past decade or so has greatly improved home affordability (average house price/average household income ratio), whereas at the other end of the spectrum, Cape Town’s home affordability has deteriorated significantly during recent years of greater market strength and strong house price growth.”
In short, FNB is saying that new homebuyers can’t afford the prices in Cape Town but can afford the slowed down prices in Joburg. Extrapolate that fact a few layers upwards and the middle+ markets, who are baulking at Cape prices, are seeing value in Gauteng. Really glad that we have this green shoot confirmation of above-average rising prices in Gauteng; a stance this blog has taken since December especially.
And here’s a stab in the same direction – the national GDP growth rate is going to be at or near to 1% for 1st Quarter 2018. May be naive but we should not underestimate the force of positive news on our economy.
A person who I have not had the privilege of meeting but who I admire through the Press is Andrew Cantor, CIO of Futuregrowth. Futuregrowth is a huge investor in Commercial and State Owned Enterprises [SOE’s]. It was Futuregrowth, with other significant players, who eventually refused funding to Transnet, Eskom and that other cash-eater, SAA, in 2016/7. Thankfully, we have not yet experienced the dire predictions of those times and may it remain so. But Andrew has written an article entitled, It’s not so gloomy in SA, in Financial Mail, the main points of which I share with you as an extract:
“It has become all too easy to overlook the positive forces that have been at work in the country in recent years, and to underestimate the potential that exists for positive change.
It is my belief that SA has many core strengths and that its challenges can be met. I am comfortable, on a daily basis, to invest pensioners’ savings into this country.
We all know the bad news. So, to explain my confidence, I’d like to offer some perspective.
SA has witnessed a remarkable political change: a new president, new cabinet and clear evidence of a crackdown on corruption.
The Futuregrowth credit team has, since the fourth quarter of 2016, been in engagement with the six largest state-owned enterprises about issues of governance. We found that four had reasonable governance structures and practices and, subject to certain changes, we recommenced lending to them. Eskom and Transnet have been at the centre of serious allegations and these are being investigated through various parliamentary and judicial processes. Our analysts continue to be in discussions about governance and improved disclosure with both these organisations and are finding them co-operative. We have not yet recommenced lending to either.
As we look back, there are some very positive signs despite the past difficult decade:
- SA’s constitution and judiciary have stood the test. The principles of the constitution were defended repeatedly by a free and independent judiciary.
- SA’s incredibly free press played a critical role in creating a channel for truths to be aired and for the public to become aware of the problems.
- Democracy itself has played a key role. The ANC suffered meaningful setbacks in the municipal elections of 2016, and the mood of the electorate was a clear warning that change for the better was vital for the party and the country.
- Civil society found its voice through whistleblowers, e-mail-leakers, writers, academics, entertainers, financiers and others.
- National treasury is the linchpin of fiscal control, and has a strong culture, with many dedicated professionals.
- Often forgotten, the Reserve Bank has constitutional protection, a clear mandate and independence.
- And SA has a large, professional and ethical investment community with a strong pension fund investment culture, legal frameworks and regulatory oversight.
As a bond investor, I deplore the weak standards in SA’s listed corporate bond market. However, that perspective can do an injustice to SA’s very strong equity market and its remarkable government bond market. Both are world class.
And we are in a unique historical position to effect positive change.
Despite good global growth in recent years, domestic mismanagement has undermined fiscal accounts and economic confidence — resulting in low domestic growth, credit-rating downgrades, and worsening inequality.
That said, the economic outlook is brightening:
- While GDP growth estimates are still pencilled in at between 1.5% and 2% for 2018 to 2020, the rise in confidence gives a likelihood of materially better outcomes.
- Domestic inflation remains subdued, offering scope for monetary policy flexibility.
- We expect better fiscal control and growth to stabilise SA’s credit rating.
As we approach the 2019 national election there will no doubt be comments and cross-winds. This may be unsettling, but during my 28 years in SA good sense has ultimately prevailed.”
Shew! If that does not encourage you, nothing will. Bad news will always be there. Just had lunch with British people and they are concerned about Brexit and would love to live here; how’s that? Andrew’s perspective lifts us from the gloom and places us in hope.
Do you do that daily where you touch the lives of Others?
Yours in Property.
PS – if you are looking for experienced and professional assistance with the home buying process, Contact Homeloan Junction – They take care of all the steps so that you can focus on what matters most to you.
- VITAL SIGNS - January 18, 2021
- ODIOUS COMPARISONS [Part 2] - December 24, 2020
- ODIOUS COMPARISONS [Part 1] - December 24, 2020
