Emerging Markets Fighting Inflation

Emerging Markets Take Positive Steps

An article published on the Sify website has highlighted increasing inflation in a number of emerging markets over the last year. While this problem is also being experienced in developed markets, rising inflation is especially acute in emerging markets because food tends to account for a much larger percentage of consumer price indexes.

To add insult to injury, many countries are working close to full capacity because investment has not kept up with economic growth, which consequently pushes up wage inflation. Official statistics may actually mask the true extent of inflationary pressures in some cases, but there is evidence that the skyrocketing food and energy prices are seeping through to core inflation (in other words, having an effect on other inflationary factors).

Concern has also been raised in terms of the effect of price increases and the various official responses to the situation. Vietnam reported a year-on-year inflation rate of 25% in May, which has seen a proliferation of labour strikes in reaction to this and growth forecasts have since been cut. China is also experiencing a core problem with rising food prices. Even Egypt has hiked public sector wages by 30% in a bid to prevent social unrest. Indonesia is said to be willing to spend a fifth of its annual budget to shield citizens from energy price increases.

Without a doubt, the inflation pressures being experienced by emerging markets seem much worse than in developed countries. Such a development is certainly worrying, as measures including subsidies, price controls and export bans can only provide short term relief at best, while probably just storing up long term problems for the future.

However, there has been a responsible approach taken by various authorities in many countries affected that is somewhat encouraging. For example, Egypt’s decision to pay for the state sector’s wage hikes by curtailing tax exemptions for firms operating outside of ‘free zones’, imposing taxes on interest earned from Treasury bills and cutting state fuel subsidies.

Indonesia announced recently that it would reduce fuel subsidies by 30%, while Taiwan has decided to abandon them entirely. Continuing the trend, Malaysia and India have also decided to reduce fuel subsidies. The current policies will go a long way towards stabilizing the finances of these countries and help direct necessary resources to other parts of their economies.

While moves by central banks in South Africa to raise interest rates in a bid to quell inflation are generally considered bad news for stocks, when it comes to the long term, it is encouraging to see the increasing credibility that these banks have acquired in battling rising prices. The same policies have been applied by banks in Korea and Chile, which ensures that the responsibility for dealing with inflation is taken out of the hands of politicians.

It is important to keep the threat of inflation in context, as policy makers in some emerging markets insist that the spike in inflation is due in part to a short term supply stock in food and energy that will soon ease as higher prices lead to increased supply. There is merit to such arguments and while recent developments are concerning, inflation should not yet be seen as a ‘crisis’ that poses a threat to the overall attraction of the world’s fastest growing economies.

Some countries have also pegged their currencies to the US dollar and successive cuts in interest rates in the US have made the inflationary problems in these countries worse, while already struggling with their economies in overdrive. How long this policy remains in place depends largely on the economy in question, as well as the priority each central bank puts on inflation control.

In general, local currency appreciation and higher interest rates should really help combat inflation. It is believed that the prospect of currency appreciation will not exacerbate the problems being experienced by emerging markets by pulling in more capital, simply because there a number of emerging market currencies are still relatively undervalued.

Equity investors are concerned about emerging markets partly because of the possible severity of measures implemented by governments in an effort to cool the economy and partly because of the cost pressure that local manufacturers might face as a result of price increases. Of course, another concern is the depreciation in value of future money. However, in places like Latin America and Russia, the recent spike in global inflation has been concentrated in commodities and this has actually helped stock indexes.

While the price of commodities may drop from their peaks, these prices are not foreseen to reach extremely low levels in the near future. This is due in part to the continued demand from emerging markets and the relatively inelastic supply. Thus commodity companies should remain in a profitable position and constitute an attractive investment opportunity.

The information in this article is courtesy of Mark Mobius (“Rising inflation in emerging markets”, Sify Finance, 29 June 2008).

If you would like to buy or sell property in Cape Town's False Bay area, please visit www.falsebayproperty.co.za or www.coastalrealestate.co.za.

The Unsustainabilty of Western Economics

“THE UNSUSTAINABILITY OF WESTERN ECONOMICIS -- IS THE WRITING ON THE WALL?”

As the global economic meltdown worsens with each subsequent fuel hike, and new reports surface of another bank or country affected by exposure to the “sub prime “investment debacle. I find myself thinking back to the prophets and visionaries of the sixties who were able to foresee the future we now live in. Authors like E.F. Schumacher who wrote “Small is Beautiful“(his daughter recently re released “Small Is Still Beautiful) His book warns of the folly of using fossil fuel recklessly and the stupidity of assuming that it will be there forever. He compared it to cannibalizing and consuming ones own fixed assets, instead of utilizing it wisely and sparingly to create other sustainable technologies.

Obviously oil was cheap and give or take a few political and military hiccups in the Middle East, the taps stayed on and the black gold continued to flow, most of it to the power greedy western economies. We continued building our global growth centered and global warming civilization. The Answer my friend was already blowing in the wind. The subsequent decades were spent constructing one of the most power hungry, energy gobbling civilizations on earth. The wasteful idea of people living far from their places of work and all expending huge amounts of fuel traveling to and from work twice a day and not to mention the resultant pollution that is contributing vastly to global warming. With the present I.T. technologies we are able to work anywhere and anytime. These city centre work places are filled with energy hungry sky scrapers consuming power for lighting and ventilation.

Another term that Schumacher coined was “Appropriate Technology “meaning that the resources used to create the means should be justified by the end use. For example a bicycle once made was carbon neutral and in use thereafter provided cheap and efficient transport. Another example would be an aircraft that is rescuing people is appropriate technology, but not when used as a war machine.

It is a known fact that large concentrations of people have a huge environmental impact on their surroundings with the waste, sewage, traffic congestion and other resultant factors. The unreality of our monetary system is designed to enslave the population in a web of high interest debt and inflation that is built into the workings of the economy.

We are exchanging most of our working life in pursuit of food and shelter and accumulating more and more debt and taxes. In a rural small village environment we could build modest natural homes and grow our own organic food and get rid of all the middle men and packaging that inflates the prices. Surprisingly we might even find that we now have time for dreaming and family pursuits. The spiraling food costs are linked to the energy scarcity and other costs and these are not likely to ever go down again. The “ Bio Fuel “ idea is another example of symptomatic thinking like trying to rearrange the deck chairs on the Titanic and this idea poses huge risks to the future food supply of planet Earth. The problem is getting rapidly worse as the populous second and third world nations buy into the “ Big Stupid “ and are likely to follow the west into environmental and economic oblivion.

Our centralized Western arms based economies need to smell the coffee and reinvest all those billions of dollars into an economy and a world where people matter. More likely the individual will once more have to lead the way. Perhaps the sixties anthem is relevant once more? TURN ON, TUNE IN AND DROP OUT…..

Harold Kolnik. June 17, 2008

I am presently working in the property industry but have been a whole food manufacturer, natural and comfort wear clothing manufacturer, pioneer of craft markets and also have a great interest in sustainable living. I am happiest in rural unspoilt environments but see these rapidly vanishing all around me. I enjoy traveling and observing other cultures.

The present dead end economic stale mate prompted me to write this article. There has to be a better way to practice economics.

If you would like to buy or sell property in Cape Town's False Bay area, please visit www.falsebayproperty.co.za or www.coastalrealestate.co.za.

False Bay Attractions

Youth Day Regatta in False Bay

Home to the False Bay Yacht Club, the month of June plays host to a youth day regatta where dinghy sailing takes place in the morning and there is keelboat racing in the afternoon. The primary goal of the event is to introduce junior sailors to keelboat sailing in the relatively safe waters off the False Bay Coast. Yacht clubs register to take part and sailors and sightseers come from all over the Cape to take part. This year the regatta was held on the 16th of June and proved to be a wonderful success, providing those who took part with the opportunity for some off-season sailing in the ideal waters of False Bay.

Whether you are interested in coastal property for the sun, sea and sand on offer, False Bay certainly provides residents and visitors with plenty of activity on and off the water. If you are interested in buying or selling property in False Bay, please don't hesitate to visit www.falsebayproperty.co.za or www.coastalrealestate.co.za.

Rate Hike Announcement "Good News"

Interest Rate Hike Less than Expected

The monetary policy committee's recent decision to hike interest rates by just 50 basis points, as opposed to the expected increase of 200 basis points, came as a relatively "ironic twist" and proved to be relatively "good news" for the residential property market in particular.

Homeowners are already under immense pressure with rising food and fuel prices and there were fears of at least a hike of 100 basis points after Reserve Bank governor Tito Mboweni hinted to the public. However, the residential market is still to experience the effects of the last increase in April.

Estate agents seem relieved, but are also aware that the market is still yet to experience the effects of the latest hike. The residential property market is bound to see a further slowdown in house prices and more "distressed" mortgage bond holders in the coming months. There is also the distinct possibility of more interest rate increases.

Whatever the case, it is clear that consumers will continue to feel the pinch of high interest rates and soaring food and fuel prices for some time to come. The market may be experiencing a slowdown, but there are many who believe that this is just part of a natural cycle sped up by a world economy in crisis. Experts have indicated that the situation is likely to continue for some time to come, but ultimately it will improve.

The information in this article is courtesy of Nick Wilson ("South Africa: Property Sector Relief at Rate Hike", Business Day, 13 June 2008).

If you would like to buy or sell property in Cape Town's False Bay area, please visit www.falsebayproperty.co.za or www.coastalrealestate.co.za.

Good News for South African Property Market

Report reveals good news for South African property market

Issued by: Knowledge Factory

A recently released report reveals that the country's property market is in good shape and that, while the ‘boom' is tapering off in certain cities, it's only growth rates, not actual property prices that are dropping.

Leading marketing insights company, Knowledge Factory, has released a report on property price growth rates for South Africa's major cities. Entitled ‘Report on South African Metropolitan Areas: Property Price Growth', the report is based on data derived from the company's popular South African Property Transfer Guide (SAPTG). The report presents an overview of both historical trends and predicted property price growth rates for South Africa's major cities.

“This report might surprise some property professionals because it confirms that property prices have not dropped recently, but are just growing at slower rates in some areas than has been previously experienced,” observes Veronique Kotzé, Western Cape regional sales consultant for the SAPTG and the report's author. “It's really a ‘good news all round' report. Overall, the whole country is in good shape and has been experiencing strong growth everywhere.”

Deeds data reveals prices and predictions
Like all of the SAPTG information, the report's figures are based on the latest Deeds Office data, in conjunction with other proprietary datasets developed by Knowledge Factory. The following major cities are covered - Bloemfontein, Cape Town, Durban, East London, Johannesburg, Port Elizabeth and Pretoria - and all free standing and sectional title properties (larger than 40m²) were examined, excluding properties categorised as small holdings or farms.

“We also used median purchased prices, as opposed to averages, to make the data as accurate as possible,” explains Kotzé, “because we're obviously dealing with very large areas and extremely diverse property types.”

As well as highlighting median prices for 2006, 2007 and 2008, together with the year-on-year growth rate achieved, the report also predicts expected growth for 2009 and 2010. “Although it should be noted that these forecasts do not take economic factors, such as the impact of interest rates, into consideration,” notes Kotzé. “They are simply based on previously achieved growth and the patterns revealed by those property sales.”

Johannesburg's lead ‘no cause for alarm'
The report shows that Johannesburg enjoyed a price growth rate of 21 percent between 2006 and 2007, but that this tapered off dramatically between 2007 and 2008 to -17 percent. A drop that Kotzé believes is a normal indication of the end of the city's property boom and no cause for alarm.

“Johannesburg has, to a large extent, led the national property boom of recent years,” Kotzé maintains, “and so it is natural that it should also be the first city showing a slight downward trend because of demand dropping off. There has been a slight drop in prices, as the result of a combination of complex factors, but, generally, it still continues to grow, just not as rapidly. I'm also confident that if we were to extend the report on for a further five years, we would see it balance out.”

Pretoria and Cape Town also slowing down
Pretoria has been experiencing the same type of growth as Johannesburg, but not quite so acutely. The city enjoyed a 14 percent price growth rate between 2006 and 2007, which also dropped between 2007 and 2008, down to 4 percent.

“Pretoria has always fluctuated less and been more stable than Johannesburg,” observes Kotzé, “and perhaps the data gives us a clue as to why since it shows that the median price of property is higher than in Johannesburg. This suggests that the city doesn't have as much middle to low cost housing and, therefore, has older, more stable residential areas.”

Cape Town's property price growth rate is also slowing down and suggests that the property boom is tapering off there too. The 2006 to 2007 growth rate of 22 percent dropped to 6 percent between 2007 and 2008. Nonetheless, the city continues to offer the highest median values for property across the country.

Regional cities on the up
In contrast to the big three metropolitan areas, regional cities like Bloemfontein, East London and Port Elizabeth are in the midst of their property booms and currently enjoying healthy property price growth rates of 40, 30 and 14 percent, respectively. “This is great news and a reflection of both big economic injections, like the building of the 2010 stadiums, and strong property development,” Kotzé notes, “although, clearly, these growth rates are also expected to start to curb over the next few years.”

Kotzé is also quick to point out that the report suggests that Port Elizabeth is actually at a different stage in the growth cycle to Bloemfontein and East London. “In fairness to Port Elizabeth, while its property boom started after the big three, it is ahead of the other regional cities,” she observes. “A fact reflected in the 40 percent price growth rate it achieved between 2006 and 2007.”

Growth rate reflects stage in property cycle
While the report reveals that some metropolitan areas are enjoying significant growth and prices are dropping in others, Kotzé reiterates that this is really a reflection of where that particular city is in the property cycle and current levels of demand for property, rather than the actual value of the property within it.

“This report is only a very high-level snapshot of a complex set of underlying conditions,” she confirms, “but it still clearly shows that property prices have not dropped. They are just growing at a slower rate than they have in recent years. Some properties have indeed been sold "at a lower price", probably due to recent rate increases, but this is not a trend yet. Further hikes and other economic pressures may very well change that. It may well take longer to sell a property in the big three cities right now, particularly in relation to expectations that were set three or four years ago, but the value of that property is still growing.”

For further details about the SAPTG ‘Report on South African Metropolitan Areas: Property Price Growth' or to find out more about subscribing to SAPTG, the leading and most comprehensive web-based source of information relating to South African real estate, visit the SAPTG website at www.saptg.co.za or contact Knowledge Factory directly on (011) 445 8150.

If you would like to buy or sell property in Cape Town's False Bay area, please visit www.coastalrealestate.co.za or www.falsebayproperty.co.za.

Time to Invest in South African Property

Expert Says Invest in Property

An article published on the Bizcommunity website reports on a recent visit by Dolf de Roos to South Africa. De Roos is an international speaker, educator, investor and author of eight best-selling books on property, including the New York Times bestseller, Real Estate Riches. He has run property investment seminars for over 20 years and is “passionate about the psychology of wealth”.

During a recent presentation made to 800 guests hosted by the Private Property Group at Montecasino, de Roos put across a strong message that “there is ample opportunity to generate wealth through property, especially in our current economic climate”. Private Property sponsored the expert’s trip and hosted this particular event for valued clients and business partners.

Justin Clarke, chairman of Private Property Holdings, says, “Dolf reminded us that we should not get stuck in the moment. If we look at how property prices grew during the up-cycle, most of us have done pretty well, even with a small decline in the market”.

Clarke adds the he was “fortunate enough to spend a fair amount of time with [de Roos] and was impressed that [he] took the time to understand the SA market. He was able to apply his international experience to developing a real opinion on what’s happening here”.

When asked by someone at the event if de Roos would risk investment in South Africa, his reply was simply, “What do you think I’m doing here?” The expert’s seminars aimed at teaching people how the world is dealing with the property market downturn and what South Africans could do to capitalize on the situation.

According to Clarke, “My lasting impression is of a powerful, immensely wealthy man who was content to fly Kulula and mucked in to unpack boxes when necessary. He showed a better depth of knowledge of the subject matter than any other property guru I have met to date”.

He adds that, “Private Property Holdings is extremely confident in the property market, which is why we were delighted to sponsor the events and share Dolf’s positive outlook with guests and delegates”.

The information in this article is courtesy of Private Property (“Invest in property,” says international expert”, Bizcommunity, 3 June 2008).

If you would like to buy or sell property in Cape Town's False Bay area, please visit www.coastalrealestate.co.za or www.falsebayproperty.co.za.

Coastal Property Shows More Strength than Other Sectors

Coastal Property Prices Somewhat Resilient

An article published in Business Report draws attention to growing concern over the ever-lengthening list of negative factors burdening property prices in South Africa. Reserve Bank governor, Tito Mboweni has made hawkish statements to the effect that the market should expect a repo rate hike of 100 basis points this month, which takes the prime interest rate to 16% and there is chance of a yet another hike of 50 basis points in August.

According to First National Bank (FNB), this would push monthly repayments on a R250 000 home loan over 20 years to R3 478 at 16%, from R2 496 in June 2006, when prime was just 10.5%. Property strategist for FNB, John Loos acknowledges that times in the residential property market are “tough”. The list of negative influences continues to expand, including high interest rates, rising inflation, a slowing economy, the National Credit Act, post-Polokwane unease, the Eskom crisis, Zimbabwe’s political dramas, xenophobic violence and low income yields.

Loos said that, “The list has become significantly longer than previously anticipated and especially interest rate hiking has gone further than we had forecast. As a result, a 21% decline in the value of new mortgage loans and re-advances is projected in 2008 and a period of national house price deflation is now forecast”.

Lightstone Risk Management’s national house price index reflects an annual property inflation drop to 7.8% in April, which is half a percentage point lower than in March and significantly lower than the rate of 14% in April 2007. Lightstone reported that higher value areas seem to be performing the worst and may have moved closer to zero or even negative nominal growth. Furthermore, house price inflation appears to be declining the fastest in smaller provincial markets.

According to the index, “Although nominal house price inflation is still positive, one major difference from last year is the decline in real house price inflation (adjusting for consumer price inflation). Currently, real house price inflation is around –3%, which is significantly down from last year when real house price inflation was 7%”.

Based on external economic forecasts involving factors such as domestic product growth, consumer inflation, disposable income growth and debt service ratios, Lightstone expected the downward trend in national house price inflation to continue and bottom out towards the middle of 2009. There is still a good chance that the low point for national nominal house price inflation will remain positive, although in some segments house prices are likely to decline even more.

In the analysis for January, Lightstone’s indication of national inflation came in at 9.2%. The high value segment, which includes properties priced between R1.5m and R750 000, continued its steep decline, dropping to 6.4%, while the more affordable sector (less than R250 000) continued to outdo the other segments and reached inflation of 24.3%.

As far as freehold property price inflation was concerned, it continued to outperform sectional titles by 3 percentage points. In January, a drop to 10.8% inflation was reported for freehold against 8% for sectional titles. Provincial growth performance in Gauteng for January reached 8.5%, which is lower than any of the other major provinces. The Eastern Cape performed best, with prices increasing by 9.7%.

The growth in coastal property prices, Lightstone found had shown surprising strength until the end of last year, but took a sharp downturn in January, dipping 2.7 percentage points to 8.5%. Growth fell back below non-coastal inflation, which came in at 9.4%,

The information in this article is courtesy of Wiseman Khuzwayo (“Growing list of negative factors burdens property prices”, Business Report, 1 June 2008).

If you are interested in buying or selling property in Cape Town's False Bay area, please visit www.falsebayproperty.co.za or www.coastalrealestate.co.za.