WINDING DOWN (2)

WINDING DOWN

This will be my last blog in November. There’s a sense of Christmas in the air although, in Hermanus, Christmas is always in the air except when it’s Easter

Christmas remains in the air as regards the property market! No winding down there!

Considering that Australia sells 90% of its property by auctions, the news from Pam Golding [PG] is interesting. With the purchase of eazi.com, the virtual property marketplace platform, PG now also uses auctioneers, BidX1, to sell homes as well. Virtual may be required for covid but being able to market property globally is a huge boon at any time. Their second Summer Auction catalogue features 21 properties, from below R2 million up to R14 million. “Superlative properties in Bedfordview, Silver Lakes (Pretoria), Kalk Bay, Sandown, Boknesstrand and Riebeek West in the glorious Cape Winelands, all of which offer exceptional value.”

The BidX1 digital platform provides alternative and easy access to a property portfolio which has been identified to “sell on the day”. In September 2019, 9 of 17 properties were sold to a value of R41 million.  PG adds, “BidX1 is recognised as one of the world’s leading and most innovative online property trading platforms, having already achieved sales success of over 10 000 properties across the globe, with a total sales value of in excess of R29 billion. Not too shabby at all, I would say!

FNB’s Property Barometer for November 2020 entitled, Price Growth Resilient, is really upbeat… [I’m leaving out the rest titled, Outlook Uncertain], for now…

“The pandemic has not had as chilling an effect as initially expected: prices growth has held up and volumes reached multi-year highs in contrast to initial expectations.”

We say it again, on the simple face of it, covid has not had the impact we thought. But a few points: I said during covid that one of the things sub-Prime taught me was not to catastrophize. Amid sudden, deep adversity we all tend to overthink the problem. Evidence at the time is pervasively negative and so are we; it reflects in our voice and posture. If you have endured covid relatively okay, learn the lesson with me. Catastrophizing, like its close cousin, Worrying, never helps anyone. Another point is that the matters upon which I serve have weathered the storm through unbelievably trying times in some cases. They stand as testimony of CorporateSA and her leadership.

The aggressive reduction in interest rates (and mortgage rates), good pricing and lower transfer duties have momentarily improved mortgage affordability and incentivised renters to buy property.”

Rentals have suffered some and FNB confirms that. I can also imagine that many landlords are experiencing tenant problems. I left feeling sorry for both, quite frankly. It’s horrible to lose your income and suffer the ignominy of not being able to pay your rent. On the other hand, landlords have costs as well. Very tough indeed.

“The FNB House Price Index (HPI) shows annual house price growth flatlined in October, reaching 2.6% y/y (last month downwardly revised from 3.1%). Despite the mild reflation in recent months, the overall residential property price growth remains below inflation, as has been the case for most of the last decade.” 

To be able to speak of house price growth is amazing in of itself. Without considering inflation and calculating the Real Price growth, we’d take anything above negative price growth.

“Lower-priced properties are performing better, with the bottom 20% of price distribution (values below R500k, using FNB transaction data) averaging 11.4% y/y in 3Q20. On the opposite end of the spectrum, the top 20% (>R1.9m) averaged 0.7% y/y in the same period.”

This statement is really business as usual apart from the extreme areas like the Atlantic Seaboard. Lower cost homes and those anecdotally “under-R2.5m” often see greater positive or lesser negative growth in prices. Probably the driving factor is the number of people employed in these affordability bands. But there’s no doubt many 1st-time homebuyers have stepped into the market during these times.

“As a result, price reductions have not been as large as initially feared. The improved affordability (lower acquisition and repayment costs) and increased demand has, inadvertently, offered sellers a bit more room to negotiate: the FNB Estate Agents Survey shows that the average discount from the listing price has pulled back somewhat, from 13% in 1Q20 to 11% in 3Q20.” 

Wow! Wriggle room for sellers and not the doomsday 20-25% reductions I was hearing about in the covid mist. Point for me is that there was no doubt urgent sales happening “at any price” but if such a quick turnaround can occur to the fortunes of sales in general, then imagine what a vaccine and going back to sustainable work could do. I’m really chuffed to read this researched assessment from John Loos at FNB!

“Despite the pandemic, industry-wide data shows bourgeoning home buying activity, with the volume of mortgage applications reaching multi-year highs. Year-to-date, applications volumes are approximately 9% year-on-year. However, approvals lag as lenders apply caution amid an uncertain economic outlook, only outpacing 2019 levels by approximately 1.5% year-to date. Approval rates are slowly recovering from their lows in May/June (and subsequently, risk cuts from lenders) and have now cleared the long-term average. Loan-to-value ratios (estimated from Deeds data) also continue to tick up. There is also stiff market competition among lenders.”

My sense of the uptick in Applications was far higher than 9 % and the banks have recovered lending levels much quicker as well. One thing’s for sure, banks understand that rising interest rates could wreak havoc on affordability but checking this out with one of them yesterday, the sense is that the current low rates will need to remain in place for another “year or two”. My view is that if I was doing a “tight” bond, I would be cautious. In my humble opinion, prices will not rise rapidly, and interest costs will rise from Q32021 because of GDP and inflation increases and to protect the Rand. I really hope I’m wrong, but I would add between 2% and 4% to test my affordability in the next 3 to 4 years.

“In our view the 2Q20 data reflects the initial impact of lockdown restrictions on employment (the “first wave”). There is a risk of a “second wave” of job losses: faced with low demand levels, corporates will likely seek to reduce operational costs and achieve efficiencies. This could come in the form of labour shedding and may even extend to higher-skilled workers, who, during the “first wave”, were relatively insulated.”

I said that I was leaving out the “Outlook Uncertain” bit, but now we have to face it. Commonsense and CNN [just joking ], tell us that the disjoint between stock markets and the market where the rest of us live, work and have our being, is stark. No one knows the chance of a second wave and we will only know after Christmas if we have behaved or not relative to the invisible virus. Vaccine jabs only come months later to the less vulnerable population and right now the lines of communication are so conspiracy-rich that who knows who will rush to be vaccinated?

SA cannot afford a further lockdown, but we may feel compelled to try. Serious damage will be done. All we can hope for is that the infections will remain under control and that a large proportion of the population will behave responsibly at least in public places. I can already see shops are relaxing and I’m pretty sure I could walk into some without a mask while heat guns lie wasted on the entrance table. Sad testimony to a pandemic quickly forgotten; we may well be “covided out”. JUST REMAIN CAREFUL, PLEASE.

So, many of us find ourselves in somewhat of a purple patch making hay while the sun shines. Good for you! However, it would be trite not to reflect on the deaths in many families and the great harm done by joblessness. In our area, we certainly have regretful evidence of that as businesses close and others hold out for the tourists we hope will come. Not easy times at all.

But for now, on the brink of December, we count ourselves fortunate and enjoy the buoyancy. Remember to speak if you’re down and encourage if you’re up. Truth is we’re all in the same boat going in the same direction and a little bit of friendliness goes a long way and lasts a long time. On this thought and to close, I complimented a Pastor the other day having heard how he stood by a well-known family who lost their Mom. He answered me like this:

“Thank you for that encouraging feedback. Ministry is an extraordinary privilege. These are intense times & every act of caring & every word of encouragement reaches far beyond what is involved in the action or the word itself.”

Point made.

We’ll talk again in December.

Yours in Property.

 

Jack Trevena

Jack Trevena

With over 30 years of experience in the banking and home loan industry, my hope it is share what I have learnt over the years with my blogging community, inspire conversation around the subject and in the process discover unique insights into this ever changing environment.
Jack Trevena

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