HEIBERG ESTATES NEWSLETTER: AUGUST 2019

AUGUST NL

Dear Property Partners

There is visibly an escalation of outcry across all sectors of our economy and society for the long-awaited ending of corruption where, very little accountability has been instigated so far. As it is, there are less and less role models and little guidance for our youth to look up to, little prospects of finding a job, building a family and a home…. And a future.

Mr Mamokgehti Molopyane pinpointed it so clearly in one of his recent Pretoria News articles: “Why should the ordinary citizen care about standards and decency and doing the right thing when their leaders disregard the rulebook”, and further stating: “Much of what’s happening in SA is a consequence of the political class united in its disunity to avoid accountability, while absolving themselves of the responsibility of leading the country out of its economic and social crisis”. No need or no more to be added to his summary of the present state of affairs. Where is the political courage to do what is right and get our economy back on track? We need to focus and stand together across ALL sectors of our economic- and political spheres in order to get us back on track. Time IS running out!

Unfortunately, the hesitation of Government to set clear guidelines regarding the merits, criteria, rules and regulations surrounding land expropriation without compensation, is visibly and increasingly impacting on all sectors of our property market. Potential investors – be it in the residential, development or commercial/industrial sectors – are openly stating that they will continue with a “wait-and-see” attitude as to what is happening, before further investing in our already very fragile property market. The fact that supply exceeds demand by far, also puts continued downwards pressure on sale volumes and property prices, whilst the latest statistics points to an extended period of reduced activity and low property increases for the remainder of this year.

It is a worldwide acknowledged fact that property is one of the biggest catalysts for economic growth. It is an undisputable fact that property is a corner stone to a healthy and prospecting society and economy. It is one of the most important contributors to the state coffers by transfer duties payable on transactions as well as monthly municipal rates and taxes, being paid by homeowners. It needs to be protected as one of our most important GDP contributors!! Also, never to be forgotten that property ownership is a fundamental right and a pillar of democracy that presently is not only protected by our Constitution, but also by international law and humanitarian conventions.

We all just hope and pray that Moody’s will not downgrade our economy to junk status in November, because the consequences will be felt across our whole economy, and visibly also in our already under siege property market. Furthermore, our rising debt and unemployment rate might just initiate the International Monetary Fund (IMF) to step in and suggest “structural adjustment programmes” in order to assist our economy. IMF loans could be issued with extensive suspensive conditions, prescribing tough policy changes, that might not necessarily be very popular. The IMF could require some state-owned enterprises like ESKOM and SAA, to be privatised, economic deregulations as well as severe labour market reforms, especially in some of our overstaffed Government Departments.

On a global scale, property prices in general are also showing sideway movements with nominal growth and in some instances, falling rapidly like e.g. in Dubai, where prices decreased with 20% over the past 5 years. Also, on the international scene, wealth creation will be critical for the growth of prime residential markets along with political and economic stability.

Some interesting facts and statistics:

  • Increasingly, more and more South Africans due to our current uncertain political and economic state of affairs, are investing abroad and either financially or physically emigrating. Emigration enquiries increased by 70% as recorded by Sable International over the past year and high net worth South Africans are internationalising themselves and their wealth to become global citizens. This trend also reflected in our property market where up to 60% of house owners selling, don’t buy property again. We are losing around 25 000 skilled workers and businesspeople leaving our country, joining the estimated 1,5m South African expats abroad.
  • There is a mild improvement in demand, narrowing the gap between demand and supply. The latest FNB House Price Index showed a mild y/y house price increase from 3.5% to 3.6% – the average year-to-year nominal house price growth recorded at 3.5%y/y – noticeably weaker than the 3.9% annual growth for 2018. However – it remains to be a Buyer’s market where supply exceeds demand by far and the market remains to be very price sensitive and competitive.
  • There is a stronger demand in the lower price ranges and the length of time property is on the market in the lower segment is estimated at an average of 11 weeks and 1 day versus the national average of 14 weeks and 1 day as recorded during the previous quarter.
  • FNB reports that the increase in rental prices y/y is around 4%, rentals also stimulated by the fact that a huge percentage of Sellers opt to rent rather than to buy once their properties have been sold. The highest increase in rental prices of 7.6% was in the Western Cape as recorded during the second quarter, versus the 2.8% recorded in Gauteng.
  • Buy-to-let home buying is also stabilising – the latest statistics show that during the second quarter about 6.8% of sales were in this category – much lower than the 9.7% recorded during the second quarter of 2017. Cape Town came out tops in this segment where 10.6% of all sales were buy-to-let sales and Durban came second with 10.1%. Johannesburg came in at 4.8% and Pretoria at 5.3% of total sales.
  • Interesting to note that prime international residential growth, has also continued to slow down during the first half of this year, rising by only 0.4%, versus the annual growth recorded at 5.1% y/y in June 2019. Seville World Research giving as reasons factors like worldwide economic uncertainties and slowdown, uncertain government policies, as well as the decreasing value of money – also similar local factors contributing to our pretty much stagnant property market.
  • Hong Kong still has the most expensive residential property prices in the world at an average of almost R750 000 per square meter – our most expensive properties fortunately only selling at a fraction of this cost!
  • The best performing prime global residential cities, were Berlin and Paris where residential property prices increased by approximately 4% over the past six months, whilst 8% over the last year. The other side of the coin shows that property prices as mentioned e.g. in Dubai have fallen by 20% over the past 5 years and still falling due to high levels of new build stock and global economic uncertainty.
  • The steady downwards phase of our SA business cycle has already lasted 68 months according to data released by the BankServ Africa Economic Transaction Index – the longest business downward phase on record since just after the World War 2. With our economic growth rate to near zero percent, the property market has seen some low figure, mild corrections where the MSCI’s annual Property Capital Growth Rate slowed to 1.7% by 2018 and our cap rates also showing marginal upward movement of 7,8% as recorded during our previous quarter. The rising all property vacancy rate from 5.2% in 2014 to 6,9% recorded last year, also having an impact on our slow property market – the vacancy rate expected to increase further with our very low GDP.
  • Good and unexpected recent news is that our inflation rate fell to 4% in July versus the 4,5% recorded in June and at least this should ensure that our existing interest rate of 10% should not be increased in the foreseeable future – good to have this continued lending rate stability for home owners and also prospective new Buyers.

South Africa and its people are tired and increasingly falling in a deep hole of depression and pessimism with little signs of the promised and long awaited for “New Dawn”. But it is not only our beloved country that is going through deep and troubled economic and political uncertainties, this trend is also growing on the worldwide stage.

We have little time left to regroup in the interest of the bigger picture to strive for positive transformation across all borders and spheres and to shape our destiny in the interest of justice, peace and progress. We have done it before, we can do it again if we change our mindset from what can my country do for me, to what can I do for my country! If we look hard enough and choose to focus on the positive things that are also happening, this is still an amazing country with many things to celebrate! The common thread that resonates with all of us is the beauty of this country and its multicultural rainbow nation, where the majority really wants to take hands and once again as a united front, pull us out of the doldrums. Where there is a will, there IS a way!

We need a leader to lead by example, to redefine a new political order with common ground amongst those wanting to see SA succeed and prosper, also with less infighting that is taking our President’s focus away from where it really matters. Time is running out! As a business community it is time for a coalition of forces to increase pressure on our President to act with greater strength, speed up policy reform, to implement best policy reforms under merited and qualified supervision in order to underpin economic growth and job creation!

Unless politicians in prime, leading positions are brought to justice and prosecuted, the fight against state capture and corruption will only remain to be theoretical and a severe constraint to pull our beloved country out of the doldrums. The real estate market can only thrive in a positive and confident business environment, drawing investors and stimulate economic growth resulting in increasing employment and allowing people to buy property. Once again – we desperately need to get our beloved country and all its people, back on track!

However, property will always sell, people need a roof over their heads and the minimal property price increases for a prolonged period now, coupled with our stable prime lending rate and lots of stock on the market where property investors are in the driving seat, allows for ideal and excellent property investment opportunities which could ultimately offers great returns on investment.

For great opportunities, kindly visit our website: www.heibergestates.com or call us 24/7 at 012 362 4628 / 083 654 3773. So – don’t hesitate to contact your 24/7 on standby Heiberg Estates Team! We are always there for you in need and deed!

Best and kind regards

Yours truly

Bambie & Heiberg Estates Team

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