An article in The Times discusses the recent drop in value of assets under management experienced by private client operations following the recent fall in markets. Sean Farrell, CEO of RMB Private Bank, says that the falling markets have affected the private banking sector, as clients have seen the value of their property and equity portfolios decline.
According to Farrell, primary residences tend to have the least effect, as people still need a home in which to live. However, the decline in property prices can also result in homeowners having negative equity in their homes, investment properties and business premises.
“Fortunately, we have not seen that in our business so far, as many of our clients who run into trouble on the lending side are able to trade out of their positions by shedding some assets,” said Farrell.
When it comes to equity, Farrell says that clients can literally see their net asset value decline as the market falls. Even so, RMB Private Bank’s net inflows into its wealth management business were over R1 billion in August, which suggests that clients still have cash to invest.
“We have built a very robust process when it comes to asset allocation. Wealth managers are particularly keen to establish clients’ short-term income and liability needs, so that there is no need to engage in fire sales in declining market conditions to meet their obligations,” said Farrell.
He went on to say that, “When there is a short-term liquidity need, we are not going to pump all the assets into equities, but rather keep an appropriate portion in cash. As a result, clients are well positioned to ride out poor market conditions and their losses remain paper losses that are reversed when markets turn”.
The poor market conditions serve to reinforce the need for a proper strategy that has been presented to and agreed with by clients. “We are going through an extreme downturn. Provided their strategy is still relevant, they must sit tight and ride the cycle and not panic. In equities there has been a fair amount of sector rotation and a weighing towards more cash than direct equities. It is in poor market conditions that your process is tested,” argued Farrell.
Mark Logan, head of private clients at Grindrod Bank, said that another consequence of poor markets is that revenues on the investment side of business fell. “However, falling markets also provide opportunities as it is at such times that clients start questioning their private banks’ investment philosophy and performance and there can be some churn as clients shift banks. Bad markets can result in you gaining or losing clients”.
Logan went on to say that volatile markets also force private banks to increase their level of communication with the client to both reassure and keep them in touch with events and market trends. He said that the wealth management operations of private banks must have a credible strategy and an investment philosophy that clients support.
The information in this article is courtesy of Andrew Gillingham (“Still plenty of cash to invest”, The Times, 27 September 2008).
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Tuesday, September 30, 2008
Wednesday, September 24, 2008
Wall Street Crisis Hurts Global Markets
While the main saga plays itself out in New York and London, there has been a significant ripple effect on the rest of the world. Investors in emerging markets like South Africa, which are known as “second tier economies”, have predicted an era of stunted growth and weaker currency.
Overall, emerging markets are already down 33% this year, which is far worse than the performance on Wall Street itself. Concern over Washington’s $700 billion bailout plan played a part in the tumble of the rand on Tuesday by more than 2%. Stock markets in India, Turkey and Russia all fell by more than 3%.
However, there are very few market analysts that predict a return to the financial drama that overwhelmed Asian economies in 1997, as well as Russia, Brazil, Argentina and Turkey in subsequent years. Emerging markets like South Africa are far more robust financially than in the past, with healthy surpluses that have been accumulated for just such a rainy day. There are some that might even attract investors wary of Wall Street and London.
According to Arnab Das, head of emerging markets research at Dresdner Kleinwort, an investment bank in London, “The unfortunate reality is that in one way or another everyone in the world is exposed, but that doesn’t mean there won’t be winners and losers”.
Mark Williams, an analyst of emerging Asian economies at Capital Economics, a London consulting firm, says, “Whenever something like this has happened, risk aversion has always won out and emerging markets tend to suffer more than most when the world gets into trouble”.
The primary factor for concern is that these countries generally run large current account (trade) deficits, which continue to rely on foreign investment to balance the books. South Africa’s deficit is close to 10% of gross domestic product, while in some countries like the Balkans and the Baltics it is even higher.
Royal Bank of Canada’s emerging markets strategist, Nigel Rendell says, “The financial stress leads investors to avoid things that are high risk. Emerging markets can be a high risk and an area to keep out of”. He goes on to say that if investment dries up then these countries could be left short of cash. Consequently, the only option left is to let the currencies slide.
The currency “is either devalued, or allowed to depreciate, or you have to slow down the domestic economy and slow imports from coming in at such a rate,” Rendell says. This could signal a sharp slowdown in growth rates in Turkey and Eastern Europe.
India Leaking Capital
India also seems to have been ‘leaking capital’, which has resulted in a failing currency that has subsequently put upward pressure on inflation, with figures currently more than 12%. “Comparatively, we would say India is relatively insulated because its economy is relatively closed, but we have seen capital leaving India and pressure on the currency,” says Hugo Navarro, an economist at Capital Economics. “It’s to the stage where the government is stepping in and taking steps to strengthen [the rupiah] because of concerns over inflation”.
The more optimistic news is that there are emerging economies like Russia and Brazil that are flush with cash due to peak commodity prices, as well as an economic boom in China. But even these countries are not immune, as leading Shanghai stocks are down more than 60% from their peak. The Russian market was suspended for 2 days last week having fallen more than 50% over the past four months.
It has been noted by Williams that emerging Asian stocks have dropped by more than those in developed countries, but this does not mean that the region suffers from the same financial imbalances as those affecting Western finance. “We’ve seen nothing like the kind of property bubble that has grown up in the US and UK, so there is good reason to think that Asian growth will hold up pretty well,” he adds.
The big question seems to be whether the US and European economies will slow down enough to affect Asian exports, but Williams believes that both India and China are well protected in the fact that much of the demand is generated by domestic consumers. “But some of the smaller economies like Singapore, Malaysia and Taiwan are very reliant on exports to the US and Europe”.
Another gauge of how healthy emerging markets are is the premium that has to be paid by borrowers. This has been steadily increasing in recent months, making loans much more expensive and initiating questions about whether borrowers will actually be able to pay off their loans when due dates fall.
Refinancing Loans
Dutch bank ING has calculated that $111 billion worth of emerging market bonds will have to be refinanced in the next year. With credit tight, there is doubt as to whether corporate borrowers will be able to refinance their loans.
Das doesn’t believe that we will see a sovereign debt default problem, where countries are unable to pay back their loans. Instead, the focus will be on banks and companies “that have been major issuers into the credit bubble”.
He goes on to say that, “Russia, Kazakhstan and Ukraine had a number of banks issuing debt. They haven’t all lost access [to credit], but if even Gazprom is having to pay higher [interest rate] spreads [on loans], you can be sure that the weaker names will continue to have a much harder time getting bond deals done”.
The information in this article is courtesy of Mark Rice-Oxley (“Emerging Markets Hit Hard by Wall Street Crisis”, The Christian Science Monitor, 24 September 2008).
Buy property in Cape Town's False Bay area.
Overall, emerging markets are already down 33% this year, which is far worse than the performance on Wall Street itself. Concern over Washington’s $700 billion bailout plan played a part in the tumble of the rand on Tuesday by more than 2%. Stock markets in India, Turkey and Russia all fell by more than 3%.
However, there are very few market analysts that predict a return to the financial drama that overwhelmed Asian economies in 1997, as well as Russia, Brazil, Argentina and Turkey in subsequent years. Emerging markets like South Africa are far more robust financially than in the past, with healthy surpluses that have been accumulated for just such a rainy day. There are some that might even attract investors wary of Wall Street and London.
According to Arnab Das, head of emerging markets research at Dresdner Kleinwort, an investment bank in London, “The unfortunate reality is that in one way or another everyone in the world is exposed, but that doesn’t mean there won’t be winners and losers”.
Mark Williams, an analyst of emerging Asian economies at Capital Economics, a London consulting firm, says, “Whenever something like this has happened, risk aversion has always won out and emerging markets tend to suffer more than most when the world gets into trouble”.
The primary factor for concern is that these countries generally run large current account (trade) deficits, which continue to rely on foreign investment to balance the books. South Africa’s deficit is close to 10% of gross domestic product, while in some countries like the Balkans and the Baltics it is even higher.
Royal Bank of Canada’s emerging markets strategist, Nigel Rendell says, “The financial stress leads investors to avoid things that are high risk. Emerging markets can be a high risk and an area to keep out of”. He goes on to say that if investment dries up then these countries could be left short of cash. Consequently, the only option left is to let the currencies slide.
The currency “is either devalued, or allowed to depreciate, or you have to slow down the domestic economy and slow imports from coming in at such a rate,” Rendell says. This could signal a sharp slowdown in growth rates in Turkey and Eastern Europe.
India Leaking Capital
India also seems to have been ‘leaking capital’, which has resulted in a failing currency that has subsequently put upward pressure on inflation, with figures currently more than 12%. “Comparatively, we would say India is relatively insulated because its economy is relatively closed, but we have seen capital leaving India and pressure on the currency,” says Hugo Navarro, an economist at Capital Economics. “It’s to the stage where the government is stepping in and taking steps to strengthen [the rupiah] because of concerns over inflation”.
The more optimistic news is that there are emerging economies like Russia and Brazil that are flush with cash due to peak commodity prices, as well as an economic boom in China. But even these countries are not immune, as leading Shanghai stocks are down more than 60% from their peak. The Russian market was suspended for 2 days last week having fallen more than 50% over the past four months.
It has been noted by Williams that emerging Asian stocks have dropped by more than those in developed countries, but this does not mean that the region suffers from the same financial imbalances as those affecting Western finance. “We’ve seen nothing like the kind of property bubble that has grown up in the US and UK, so there is good reason to think that Asian growth will hold up pretty well,” he adds.
The big question seems to be whether the US and European economies will slow down enough to affect Asian exports, but Williams believes that both India and China are well protected in the fact that much of the demand is generated by domestic consumers. “But some of the smaller economies like Singapore, Malaysia and Taiwan are very reliant on exports to the US and Europe”.
Another gauge of how healthy emerging markets are is the premium that has to be paid by borrowers. This has been steadily increasing in recent months, making loans much more expensive and initiating questions about whether borrowers will actually be able to pay off their loans when due dates fall.
Refinancing Loans
Dutch bank ING has calculated that $111 billion worth of emerging market bonds will have to be refinanced in the next year. With credit tight, there is doubt as to whether corporate borrowers will be able to refinance their loans.
Das doesn’t believe that we will see a sovereign debt default problem, where countries are unable to pay back their loans. Instead, the focus will be on banks and companies “that have been major issuers into the credit bubble”.
He goes on to say that, “Russia, Kazakhstan and Ukraine had a number of banks issuing debt. They haven’t all lost access [to credit], but if even Gazprom is having to pay higher [interest rate] spreads [on loans], you can be sure that the weaker names will continue to have a much harder time getting bond deals done”.
The information in this article is courtesy of Mark Rice-Oxley (“Emerging Markets Hit Hard by Wall Street Crisis”, The Christian Science Monitor, 24 September 2008).
Buy property in Cape Town's False Bay area.
Thursday, September 18, 2008
Government Should Give First Time Buyer Concessions
Call for Review of Property Laws
Jeanne van Jarsveldt, financial director of RE/MAX Southern Africa has indicated that a serious review of the law is needed to stimulate the property market and encourage first time buyers to invest. He would like to see the current threshold on payment of transfer duty to be enforced on sales over R1 million and this should be accompanied by tax breaks for first time buyers.
A “rescue package from government” seems to be what is needed in order to avoid further distress in the South African property market. Van Jaarsveldt said that the US anchored its recently launched Housing Stimulus Bill around a tax break of over R52 000 for first time buyers in an effort to stabilize the flailing market.
A similar tax concession in South Africa would go along way towards relieving some of the pressure on affordability for first time buyers, who are trapped by the five percentage point interest rate increases over the last two years.
Van Jaarsveldt also believes that a temporary suspension of transfer duty on all price categories is worth considering, at least until the market has begun to recover. He indicated that the Real Estate Institute of Australia is pressuring the government for an exemption from stamp duty on first time buyer transactions, as well as on retirees downsizing their properties. The same is happening with Britain’s National Association of Estate Agents in the UK.
According to economists, abolishing transfer tax would cause the treasury to lose around R10 billion a year, which would not make too much of a dent in the government’s budget, but would certainly ease the buying and selling of homes.
Mike Bennet, head of ProProp Franchising Group, agrees with van Jaarsveldt in his call for a temporary suspension of all transfer duty on sales under R1 million until the market starts to improve and would also like to see banks given permission to relax the National Credit Act rules on houses selling for less than R700 000.
Van Jaarsveldt refers to the property market as “a pillar of our economy” and believes that the current high number of negatives surrounding the market make it absolutely crucial that some concession be made in order to stimulate home ownership.
He said, “To ignore the situation seriously jeopardizes the growth of the emergent black middle class who we all know are vital at this stage of our country’s transformation”.
The information in this article is courtesy of Jeanne van Jaarsveldt (“First-time buyers need a break – ReMax”, Business Report, 17 September 2008).
False Bay property for sale in Noordhoek, Kommetjie and Misty Cliffs.
Jeanne van Jarsveldt, financial director of RE/MAX Southern Africa has indicated that a serious review of the law is needed to stimulate the property market and encourage first time buyers to invest. He would like to see the current threshold on payment of transfer duty to be enforced on sales over R1 million and this should be accompanied by tax breaks for first time buyers.
A “rescue package from government” seems to be what is needed in order to avoid further distress in the South African property market. Van Jaarsveldt said that the US anchored its recently launched Housing Stimulus Bill around a tax break of over R52 000 for first time buyers in an effort to stabilize the flailing market.
A similar tax concession in South Africa would go along way towards relieving some of the pressure on affordability for first time buyers, who are trapped by the five percentage point interest rate increases over the last two years.
Van Jaarsveldt also believes that a temporary suspension of transfer duty on all price categories is worth considering, at least until the market has begun to recover. He indicated that the Real Estate Institute of Australia is pressuring the government for an exemption from stamp duty on first time buyer transactions, as well as on retirees downsizing their properties. The same is happening with Britain’s National Association of Estate Agents in the UK.
According to economists, abolishing transfer tax would cause the treasury to lose around R10 billion a year, which would not make too much of a dent in the government’s budget, but would certainly ease the buying and selling of homes.
Mike Bennet, head of ProProp Franchising Group, agrees with van Jaarsveldt in his call for a temporary suspension of all transfer duty on sales under R1 million until the market starts to improve and would also like to see banks given permission to relax the National Credit Act rules on houses selling for less than R700 000.
Van Jaarsveldt refers to the property market as “a pillar of our economy” and believes that the current high number of negatives surrounding the market make it absolutely crucial that some concession be made in order to stimulate home ownership.
He said, “To ignore the situation seriously jeopardizes the growth of the emergent black middle class who we all know are vital at this stage of our country’s transformation”.
The information in this article is courtesy of Jeanne van Jaarsveldt (“First-time buyers need a break – ReMax”, Business Report, 17 September 2008).
False Bay property for sale in Noordhoek, Kommetjie and Misty Cliffs.
Monday, September 15, 2008
Good News for Property Buyers
Bank managers loosen screws for property buyers
Realestateweb.co.za reporter
08 September 2008
At last some good news for the residential sector: Mortgage rejection figures have eased slightly and buyers get bigger interest rate discounts.
At last there is some good news for the residential real estate sector.
Mortgage rejection figures eased slightly and buyers got better interest rate discounts in August, new figures from the country's largest mortgage originator, ooba, suggest.
Ooba issued its second "oobarometer" price index on Monday. Price trends still look horrible, with the average house price down from R821 351 in August last year to R776 048 in the same month this year.
But, noted ooba Chief Executive Officer Saul Geffen: "While house prices continue their downward trend, there have been improvements in average decline ratios and rate concessions."
The average decline ratio - or percentage of all loan applications initially rejected by banks - improved by 1,3% to 49,8%, he said. Of those, however, more than 30% received a home loan from another bank.
Interest rate discounts, or concessions, to the prime interest rate "also show a slight improvement on last month".
It was at about 1,24% compared to 1,21% in July, said ooba. The top 10% of customers are enjoying a discount of just under 2% to prime (1,91%), said the originator.
Other trends noted by ooba include that:
* First-time buyers are still feeling the pinch, with the average purchase price for this segment down to about R490 000. This figure a year ago was about R550 000.
* Deposits have also risen sharply, from 11% to just under 20% (18,8%), "reflecting the significant shift in banks' lending criteria".
Find property for sale in the False Bay area of Cape Town.
Realestateweb.co.za reporter
08 September 2008
At last some good news for the residential sector: Mortgage rejection figures have eased slightly and buyers get bigger interest rate discounts.
At last there is some good news for the residential real estate sector.
Mortgage rejection figures eased slightly and buyers got better interest rate discounts in August, new figures from the country's largest mortgage originator, ooba, suggest.
Ooba issued its second "oobarometer" price index on Monday. Price trends still look horrible, with the average house price down from R821 351 in August last year to R776 048 in the same month this year.
But, noted ooba Chief Executive Officer Saul Geffen: "While house prices continue their downward trend, there have been improvements in average decline ratios and rate concessions."
The average decline ratio - or percentage of all loan applications initially rejected by banks - improved by 1,3% to 49,8%, he said. Of those, however, more than 30% received a home loan from another bank.
Interest rate discounts, or concessions, to the prime interest rate "also show a slight improvement on last month".
It was at about 1,24% compared to 1,21% in July, said ooba. The top 10% of customers are enjoying a discount of just under 2% to prime (1,91%), said the originator.
Other trends noted by ooba include that:
* First-time buyers are still feeling the pinch, with the average purchase price for this segment down to about R490 000. This figure a year ago was about R550 000.
* Deposits have also risen sharply, from 11% to just under 20% (18,8%), "reflecting the significant shift in banks' lending criteria".
Find property for sale in the False Bay area of Cape Town.
Monday, September 8, 2008
How to Thrive in Tough Conditions
Expert Advice on How to Sell Property
Despite the current economic conditions where the property market is particularly sluggish, there are experts who believe that there are still ways to maximize profits. Bill Gibson is a sales specialist who spoke to estate agents at a national conference of the Institute of Estate Agents (IEASA) in Johannesburg recently. He insisted that times like these can often provide the best opportunities to gain market share.
While sellers are in abundance, finding them is still the most important factor, Gibson says. “This is the time that estate agents need to be actively involved in listing properties if they want them sold,” he urges. This means increasing canvassing by between 20% and 40% and Gibson also suggested that estate agents hold show houses with properties where other agents have the mandate. This obviously requires permission from the seller and agent, as well as a follow up on all potential buyers who walk through the show house door.
According to Gibson, investment seminars are an ideal platform to mingle and circulate, while referrals are “a good source of potential buyers and sellers”. This all begins with one’s circle of friends and business associates. Even in tough times, there are still buyers and agents simply have to work that much harder to find them.
Business and coaching specialist, Graham le Sar said that the market right now is just as it should be. Estate agents, on the other hand, need to become more innovative in their response to the market if they are to sell properties successfully. He likened real estate to a contact sport, saying that estate agents constantly have to engage potential buyers, sellers and homeowners to keep the momentum going.
Le Sar went on to say that, “The biggest mistake estate agents make is doing nothing when the property market is down”. He says that estate agents really need to find ways of preparing themselves for a change in the market. While they may work less, they also need to work more thoroughly and ensure that every detail of a transaction is covered fully and clearly explained to clients. “Homeowners will always own houses and these are the first potential buyers when they sell,” le Sar points out.
Graham Gavin, author of Real Estate Power, has said that successful estate agents generate new ideas and fresh leads on a daily basis. He also believes that it is possible to thrive in a downcycle if you have the right attitude, plus a few extra measures thrown in that make the estate agent stand out in a crowd.
Gavin also said that estate agents are not paid for the time that they put into selling houses, but how they sell them. For instance, if you sell successfully to one client then you will no doubt get more referrals for the outstanding service. “To thrive in a down market, think smart and swiftly implement those strategies in every transaction you make,” advises Gavin.
The information in this article is courtesy of Denise Mhlanga (“Making money in a sluggish property market”, Realestateweb, 8 September 2008).
Find property in Simon's Town, Fishhoek, Noordhoek and the False Bay area.
Despite the current economic conditions where the property market is particularly sluggish, there are experts who believe that there are still ways to maximize profits. Bill Gibson is a sales specialist who spoke to estate agents at a national conference of the Institute of Estate Agents (IEASA) in Johannesburg recently. He insisted that times like these can often provide the best opportunities to gain market share.
While sellers are in abundance, finding them is still the most important factor, Gibson says. “This is the time that estate agents need to be actively involved in listing properties if they want them sold,” he urges. This means increasing canvassing by between 20% and 40% and Gibson also suggested that estate agents hold show houses with properties where other agents have the mandate. This obviously requires permission from the seller and agent, as well as a follow up on all potential buyers who walk through the show house door.
According to Gibson, investment seminars are an ideal platform to mingle and circulate, while referrals are “a good source of potential buyers and sellers”. This all begins with one’s circle of friends and business associates. Even in tough times, there are still buyers and agents simply have to work that much harder to find them.
Business and coaching specialist, Graham le Sar said that the market right now is just as it should be. Estate agents, on the other hand, need to become more innovative in their response to the market if they are to sell properties successfully. He likened real estate to a contact sport, saying that estate agents constantly have to engage potential buyers, sellers and homeowners to keep the momentum going.
Le Sar went on to say that, “The biggest mistake estate agents make is doing nothing when the property market is down”. He says that estate agents really need to find ways of preparing themselves for a change in the market. While they may work less, they also need to work more thoroughly and ensure that every detail of a transaction is covered fully and clearly explained to clients. “Homeowners will always own houses and these are the first potential buyers when they sell,” le Sar points out.
Graham Gavin, author of Real Estate Power, has said that successful estate agents generate new ideas and fresh leads on a daily basis. He also believes that it is possible to thrive in a downcycle if you have the right attitude, plus a few extra measures thrown in that make the estate agent stand out in a crowd.
Gavin also said that estate agents are not paid for the time that they put into selling houses, but how they sell them. For instance, if you sell successfully to one client then you will no doubt get more referrals for the outstanding service. “To thrive in a down market, think smart and swiftly implement those strategies in every transaction you make,” advises Gavin.
The information in this article is courtesy of Denise Mhlanga (“Making money in a sluggish property market”, Realestateweb, 8 September 2008).
Find property in Simon's Town, Fishhoek, Noordhoek and the False Bay area.
Friday, September 5, 2008
What Are the Banks Predicting for Residential Property in SA?
House Price Index Stats - Worst Case Scenario
The latest reports from FNB’s house price index indicate that a drop of 5% is the worst South African consumers can expect before things in the residential property market begin to improve. Before now, FNB’s property watchers have relied primarily on data retrieved from other sources, but the bank has now developed its own index, using details from mortgages approved to produce price inflation figures.
According to FNB, the results of this new index are relatively similar to ABSA’s, with the figures indicating a 2.3% year on year increase in house prices in August. This is down 3.5% from the data recorded in July and reflects a continuing “declining inflation trend”. In real terms, FNB’s property strategist John Loos says that there has been a drop of almost 9% and that basis prices are dropping month to month, with a –0.3% fall in nominal terms in August.
“While month on month house price deflation is already here, year on year price deflation is expected to arrive soon. However, no ‘freefall’ is anticipated. Rather, around a –5% year on year deflation is expected at the worst part of the price cycle in the first half of 2009,” says Loos. He goes on to say that after that, price inflation is predicted to resume late next year “on the back of recovering economic growth and declining interest rates”.
According to FNB’s market sample, the average house price transacted as at August was around R681 000, while the median price was about R550 000. “In reality though, both measures are over-estimates of what the average house value in South Africa really is. This is because higher income households are generally more mobile than low income ones, which means that a greater percentage of total stocks gets traded in middle to upper income areas, as opposed to, for example, black townships,” explains Loos.
Loos argues that if every property could be valued, even RDP housing, regardless of whether it gets transacted, the average median values would be considerably lower. The FNB house price index is calculated using the average value of housing transactions financed by the bank. He says that in order to eliminate outliers from the data sample, transaction values have to be above 70% of the property valuation, but below 130%, while sales concluded above R10m and below R20 000 are excluded.
The strategist emphasized that the house price depicted in indices does not really show the “full extent of residential market weakness”. In fact, “sellers are somewhat inflexible when it comes to dropping their asking price. Some would stay out of the market during these weak times, while others hold on longer to obtain their price, often incurring higher holding costs,” Loos says.
Therefore, sales volumes would probably give a better reflection of the current state of the market than prices. Agents are generally seeing volumes down by close to half of what they were at the same time last year. Meanwhile, ABSA also released their house price index on Thursday and put the average house price at about R962 500. The average nominal price of a medium sized house with an average price of around R946 200 increased by a mere 2% year on year in August, which incidentally is the lowest growth rate since January 1993, this according to ABSA’s senior property analyst Jacques du Toit. Larger houses (up to 400m²) increased by a little over 1% according to the data supplied by ABSA, which brings the average house price to R1 368 000 and small houses increased by just under 4%, bringing the average house price in this sector to about R682 500.
In real terms though, ABSA says that house prices have been falling for the last six months with a drop not far off 10% in July. The bank believes that real house prices are set to drop by another 7% this year, which is the first annual decline since 1999. The nominal growth rate for 2008 is expected at around 4.5%.
“It is, however, only in 2010 that nominal price growth is expected to rise to a level of above 10% again, while real price growth is projected to turn positive in the same year after two years (2008 and 2009) of real price declines,” according to du Toit. He goes on to say that the latter part of this year and early 2009 will probably be “the best time to buy property”.
The information in this article is courtesy of Realestatweb (“Residential property prices: the worst-case scenario”, 4 September 2008).
Buy or sell property in Scarborough, Fish Hoek or Kommetjie in the False Bay area of Cape Town, South Africa.
The latest reports from FNB’s house price index indicate that a drop of 5% is the worst South African consumers can expect before things in the residential property market begin to improve. Before now, FNB’s property watchers have relied primarily on data retrieved from other sources, but the bank has now developed its own index, using details from mortgages approved to produce price inflation figures.
According to FNB, the results of this new index are relatively similar to ABSA’s, with the figures indicating a 2.3% year on year increase in house prices in August. This is down 3.5% from the data recorded in July and reflects a continuing “declining inflation trend”. In real terms, FNB’s property strategist John Loos says that there has been a drop of almost 9% and that basis prices are dropping month to month, with a –0.3% fall in nominal terms in August.
“While month on month house price deflation is already here, year on year price deflation is expected to arrive soon. However, no ‘freefall’ is anticipated. Rather, around a –5% year on year deflation is expected at the worst part of the price cycle in the first half of 2009,” says Loos. He goes on to say that after that, price inflation is predicted to resume late next year “on the back of recovering economic growth and declining interest rates”.
According to FNB’s market sample, the average house price transacted as at August was around R681 000, while the median price was about R550 000. “In reality though, both measures are over-estimates of what the average house value in South Africa really is. This is because higher income households are generally more mobile than low income ones, which means that a greater percentage of total stocks gets traded in middle to upper income areas, as opposed to, for example, black townships,” explains Loos.
Loos argues that if every property could be valued, even RDP housing, regardless of whether it gets transacted, the average median values would be considerably lower. The FNB house price index is calculated using the average value of housing transactions financed by the bank. He says that in order to eliminate outliers from the data sample, transaction values have to be above 70% of the property valuation, but below 130%, while sales concluded above R10m and below R20 000 are excluded.
The strategist emphasized that the house price depicted in indices does not really show the “full extent of residential market weakness”. In fact, “sellers are somewhat inflexible when it comes to dropping their asking price. Some would stay out of the market during these weak times, while others hold on longer to obtain their price, often incurring higher holding costs,” Loos says.
Therefore, sales volumes would probably give a better reflection of the current state of the market than prices. Agents are generally seeing volumes down by close to half of what they were at the same time last year. Meanwhile, ABSA also released their house price index on Thursday and put the average house price at about R962 500. The average nominal price of a medium sized house with an average price of around R946 200 increased by a mere 2% year on year in August, which incidentally is the lowest growth rate since January 1993, this according to ABSA’s senior property analyst Jacques du Toit. Larger houses (up to 400m²) increased by a little over 1% according to the data supplied by ABSA, which brings the average house price to R1 368 000 and small houses increased by just under 4%, bringing the average house price in this sector to about R682 500.
In real terms though, ABSA says that house prices have been falling for the last six months with a drop not far off 10% in July. The bank believes that real house prices are set to drop by another 7% this year, which is the first annual decline since 1999. The nominal growth rate for 2008 is expected at around 4.5%.
“It is, however, only in 2010 that nominal price growth is expected to rise to a level of above 10% again, while real price growth is projected to turn positive in the same year after two years (2008 and 2009) of real price declines,” according to du Toit. He goes on to say that the latter part of this year and early 2009 will probably be “the best time to buy property”.
The information in this article is courtesy of Realestatweb (“Residential property prices: the worst-case scenario”, 4 September 2008).
Buy or sell property in Scarborough, Fish Hoek or Kommetjie in the False Bay area of Cape Town, South Africa.
Monday, September 1, 2008
Could Be Entering Best Time to Buy Property in SA
Sentiment Seems to be Improving in SA
No doubt, there are many South African consumers who breathed a significant sigh of relief at the Reserve Bank’s recent decision to put interest rates on hold. According to Rael Levitt, chief executive of the Alliance Group, both investors and property owners had realized the country was most likely at the pinnacle of the interest rate cycle.
Levitt believes that investor sentiment in the residential and commercial property markets in particular has improved substantially over the last two weeks. “Trading on our auction floors in August throughout the country has seen the strongest investor appetite in over 12 months and our success rates and bidding activity has literally changed overnight,” he explains.
Prior to the South African Reserve Bank’s (SARB) decision to place interest rates on hold, investors were beginning to believe the property market was heading for a recession and with the added worries of political insecurity, crime, xenophobic violence, the Eskom crisis, as well as food and fuel inflation, public sentiment literally took a nosedive, says Levitt.
“South Africans are naturally resilient investors, but consumer and business confidence took a big knock in the first half of the year,” Levitt adds. He goes on to say that the commercial property market tracked interest rates and while there had been “insignificant pockets” of financial distress in the sector, it has remained relatively resilient, despite the continued weakening of business confidence.
There are local investors who experienced downturns in the 1990s and realized that the current downtrend was nowhere near the slump of the previous period, when the investors tended to shy away from property investment. “In fact, most of our investors now realize that if interest rate levels are peaking, this is the time when they should be investing in a market which is offering great value,” says Levitt.
Levitt argues that as South African investors get used to the neutral stance taken by the SARB, they will realize that there is a small window of opportunity for fixed property investment, which has all the necessary fundamentals for medium and long-term growth. However, the economy is not yet out of the dark and the residential property market has the extra burden of heavy borrowing, which comes at a significantly high cost.
“We still see further price deceleration into 2009 and increased mortgage stress, which always has a lag effect after interest rates have spiked,” warns Levitt. He adds that there are a number of residential property buyers and investors, who have deep pockets and are literally snapping up residential properties in the suburbs across the country, at prices that will seem bargain basement in two years time.
The gist of the matter seems to be that many buyers and investors have realized that the next 12 months will be the best opportunity in 20 years to buy residential property.
The information in this article is courtesy of Sapa (“Rate call to slowly trickle through market”, IOL, 1 September 2008).
Buy or sell property in False Bay, Scarborough or Noordhoek in South Africa.
No doubt, there are many South African consumers who breathed a significant sigh of relief at the Reserve Bank’s recent decision to put interest rates on hold. According to Rael Levitt, chief executive of the Alliance Group, both investors and property owners had realized the country was most likely at the pinnacle of the interest rate cycle.
Levitt believes that investor sentiment in the residential and commercial property markets in particular has improved substantially over the last two weeks. “Trading on our auction floors in August throughout the country has seen the strongest investor appetite in over 12 months and our success rates and bidding activity has literally changed overnight,” he explains.
Prior to the South African Reserve Bank’s (SARB) decision to place interest rates on hold, investors were beginning to believe the property market was heading for a recession and with the added worries of political insecurity, crime, xenophobic violence, the Eskom crisis, as well as food and fuel inflation, public sentiment literally took a nosedive, says Levitt.
“South Africans are naturally resilient investors, but consumer and business confidence took a big knock in the first half of the year,” Levitt adds. He goes on to say that the commercial property market tracked interest rates and while there had been “insignificant pockets” of financial distress in the sector, it has remained relatively resilient, despite the continued weakening of business confidence.
There are local investors who experienced downturns in the 1990s and realized that the current downtrend was nowhere near the slump of the previous period, when the investors tended to shy away from property investment. “In fact, most of our investors now realize that if interest rate levels are peaking, this is the time when they should be investing in a market which is offering great value,” says Levitt.
Levitt argues that as South African investors get used to the neutral stance taken by the SARB, they will realize that there is a small window of opportunity for fixed property investment, which has all the necessary fundamentals for medium and long-term growth. However, the economy is not yet out of the dark and the residential property market has the extra burden of heavy borrowing, which comes at a significantly high cost.
“We still see further price deceleration into 2009 and increased mortgage stress, which always has a lag effect after interest rates have spiked,” warns Levitt. He adds that there are a number of residential property buyers and investors, who have deep pockets and are literally snapping up residential properties in the suburbs across the country, at prices that will seem bargain basement in two years time.
The gist of the matter seems to be that many buyers and investors have realized that the next 12 months will be the best opportunity in 20 years to buy residential property.
The information in this article is courtesy of Sapa (“Rate call to slowly trickle through market”, IOL, 1 September 2008).
Buy or sell property in False Bay, Scarborough or Noordhoek in South Africa.
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