What foreigners really think of SA property
2009-01-07 · Property Market Reports
Three factors that could transform domestic market slump to a crash - global analysis, world picture. Last year's global financial crisis turned a widespread myth on its head: that residential property markets in countries like South Africa are largely isolated from events elsewhere and mainly dependent on domestic factors for their performance.
The disease that started in US housing markets in 2007 and spread, thanks to international trade in toxic securities, has contaminated dozens of countries and the illness has not yet been stopped in its tracks.
South Africa, we have found, is not immune.
Price growth slowed last year and finally toppled into negative terrain in nominal terms. The prognosis for 2009 is bleak: local property watchers like FNB Home Loans' John Loos expect house prices to drop this year. The FNB forecast is a nominal decline of roughly 4%.
The senior property strategist's views resonate with forecasts on South Africa put out by market commentators elsewhere in the world. The price trend is down.
The Global Property Guide, which conducts thorough research on about 30 countries, doesn't expect dramatic double-digit falls here of the order seen in places like the US and UK. But it isn't ruling this out.
Its senior economist, Prince Christian R. Cruz, told Realestateweb.co.za recently that his organisation believes there are "several possible scenarios that might push the housing market to crash".
He pointed to three areas of concern:
1 . Zimbabwe's political, economic and health crises spilling over to South Africa. "The sooner the new government intervenes and moves to contain the damage done by Mugabe, the better. Past attacks on immigrants and the increasing number of refugees across the border highlights how volatile the situation is", noted the economist.
2. Zuma's Presidency. "ANC's President Jacob Zuma is expected to win this year's election and become South Africa's President. It is unclear if Zuma's populist rhetoric will translate into actual policies." If so, this "can undo the substantial economic gains by the Mbeki administration", warned Cruz.
3. Commodity prices. "South Africa benefitted greatly from the historic high commodity and mineral prices in 2006 and 2007. As the global economy slows down, prices of these goods have dropped leading to economic slowdown in SA. If commodity and mineral prices drop bigger than anticipated in 2009, this may push the economy into recession dragging the economy with it," said Cruz.
The Global Property Guide commentator said "the government should act quickly to avert an impending crisis - Zimbabwe and the election in 2009 are unneeded distractions."
Nevertheless, the view isn't entirely bleak. "As the global economic slump creeps into the developing world, South Africa's housing market is expected to show some resilience," said Cruz.
"If the economic situation remains the same, no dramatic house price falls are expected," he added.
The Global Property Guide said, in its view for 2009, that this year should be "deeply unpleasant" in general. The only regions it is particularly optimistic about are Latin America and the Middle East, thanks to high gross rental yields in these regions.
However, it urged investors to proceed with caution in those zones too, because both are highly dependent on commodity sales, which suffer in recessions.
Global Property Guide said that there are three major influences on house prices: economic growth, momentum and interest rates.
A deep recession would have "strongly negative effects on house prices" because people have less disposable income and uncertainties encourage them to save rather than spend.
"Expectations and price momentum are strongly down in many major markets. People tend to derive their impression of what is likely to happen to house prices, from neighbours and from the news, and the news is bad."
Interest rates have been ticking down in the developed world, but banks elsewhere - particularly in the UK - have been resistant to lowering rates for clients. South African banks, meanwhile, passed on the first interest rate cut for several years to clients, though some were a little slow to share the benefit.
South African sellers who have been pinning their hopes on a rush of foreigners taking advantage of a weak rand to buy cheap luxury homes here should temper their expectations.
As Global Property Guide pointed out, "the luxury segment demand from Europe and America has been severely affected by the global credit crunch and economic slowdown".
By the third quarter of last year, inflation-adjusted house prices had fallen in more than 21 of 29 countries. In no country is there cause for strong optimism this year, is the message from Global Property Guide.
The disease that started in US housing markets in 2007 and spread, thanks to international trade in toxic securities, has contaminated dozens of countries and the illness has not yet been stopped in its tracks.
South Africa, we have found, is not immune.
Price growth slowed last year and finally toppled into negative terrain in nominal terms. The prognosis for 2009 is bleak: local property watchers like FNB Home Loans' John Loos expect house prices to drop this year. The FNB forecast is a nominal decline of roughly 4%.
The senior property strategist's views resonate with forecasts on South Africa put out by market commentators elsewhere in the world. The price trend is down.
The Global Property Guide, which conducts thorough research on about 30 countries, doesn't expect dramatic double-digit falls here of the order seen in places like the US and UK. But it isn't ruling this out.
Its senior economist, Prince Christian R. Cruz, told Realestateweb.co.za recently that his organisation believes there are "several possible scenarios that might push the housing market to crash".
He pointed to three areas of concern:
1 . Zimbabwe's political, economic and health crises spilling over to South Africa. "The sooner the new government intervenes and moves to contain the damage done by Mugabe, the better. Past attacks on immigrants and the increasing number of refugees across the border highlights how volatile the situation is", noted the economist.
2. Zuma's Presidency. "ANC's President Jacob Zuma is expected to win this year's election and become South Africa's President. It is unclear if Zuma's populist rhetoric will translate into actual policies." If so, this "can undo the substantial economic gains by the Mbeki administration", warned Cruz.
3. Commodity prices. "South Africa benefitted greatly from the historic high commodity and mineral prices in 2006 and 2007. As the global economy slows down, prices of these goods have dropped leading to economic slowdown in SA. If commodity and mineral prices drop bigger than anticipated in 2009, this may push the economy into recession dragging the economy with it," said Cruz.
The Global Property Guide commentator said "the government should act quickly to avert an impending crisis - Zimbabwe and the election in 2009 are unneeded distractions."
Nevertheless, the view isn't entirely bleak. "As the global economic slump creeps into the developing world, South Africa's housing market is expected to show some resilience," said Cruz.
"If the economic situation remains the same, no dramatic house price falls are expected," he added.
The Global Property Guide said, in its view for 2009, that this year should be "deeply unpleasant" in general. The only regions it is particularly optimistic about are Latin America and the Middle East, thanks to high gross rental yields in these regions.
However, it urged investors to proceed with caution in those zones too, because both are highly dependent on commodity sales, which suffer in recessions.
Global Property Guide said that there are three major influences on house prices: economic growth, momentum and interest rates.
A deep recession would have "strongly negative effects on house prices" because people have less disposable income and uncertainties encourage them to save rather than spend.
"Expectations and price momentum are strongly down in many major markets. People tend to derive their impression of what is likely to happen to house prices, from neighbours and from the news, and the news is bad."
Interest rates have been ticking down in the developed world, but banks elsewhere - particularly in the UK - have been resistant to lowering rates for clients. South African banks, meanwhile, passed on the first interest rate cut for several years to clients, though some were a little slow to share the benefit.
South African sellers who have been pinning their hopes on a rush of foreigners taking advantage of a weak rand to buy cheap luxury homes here should temper their expectations.
As Global Property Guide pointed out, "the luxury segment demand from Europe and America has been severely affected by the global credit crunch and economic slowdown".
By the third quarter of last year, inflation-adjusted house prices had fallen in more than 21 of 29 countries. In no country is there cause for strong optimism this year, is the message from Global Property Guide.
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