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31 May 2012

About booms and busts
Rode - South Africa
The most recent Absa House Price Index indicates that nominal house prices have now been contracting for three months year on year. The latest figure shows a decline of 5% since April 2011. As a result, house prices are in real terms moving closer to their long-run trend line, aided by high building-cost inflation (which is now much higher than consumer inflation). Lucky South Africa, your bubble is deflating; not bursting!

South Africa’s market could have been in a much worse state.

In the USA, Robert J. Shiller, renowned for what he and Greenspan had coined “irrational exuberance”, quite rationally predicted in 2006 that the bubble would burst (The Economist, 22 April 2006). And so it did. Shiller now believes that it would take at least a generation, and maybe even two, to recover (Reuters, 24 April 2012). Granted, this latest opinion seems a bit extreme, but it should not be rejected out of hand because it is probably based on the Japanese experience after 1989. In that year, an extraordinary real estate bubble in Japan burst, and more than two decades later there is still no recovery in sight - in spite of huge monetary expansion (“quantitative easing”) and zero or near-zero interest rates. In fact, the Japanese can be called the inventors of quantitative easing. So, perish the thought, Shiller could be right again.
rode.co.za

South African Property Owners in the Black
Lightstone - South Africa
The majority of bonded property owners hold positive equity in their properties.  This si the finding of a recent Lightstone study which looked at the overall outstanding bond compared with the current property value.  Good news for property owners and lending institutions alike. 

In order to establish the relationship between outstanding bond amount and current property value, Lightstone analysts applied the following assumptions to all bond data from March 2009:

  • A draw down percentage of 87.75% (i.e. registered vs. withdrawn bond amount)
  • A pay off period of 20 years
  • An interest rate of prime les 0,5%, with the prime rate averaged over a calendar year

Full report

Joburg's clearance certificate debacle
Moneyweb - South Africa
Legal experts argue there has been no improvement in the issuing of these certificates.
JOHANNESBURG - Severe delays in the City of Johannesburg’s issuance of clearance certificates have seemingly not abated, despite its pledge to resolve issues related to the billing crisis under its Billing Road Map.

The inefficiencies, which seem to have roots in problems related to the City’s billing and data capturing systems, are creating “massive” delays in the issuance of the clearance certificates required to sell property, according to a range of experts.

Legal experts Moneyweb spoke to say no improvement has been noted in the speed at which Johannesburg is able to process the certificates, since the launch of the Road Map last year.

Johannesburg responded to detailed requests for comment on clearance delays by largely quoting from sections of its website pertaining to clearance certificates.
moneyweb.co.za

Property Barometer - Estate Agent Survey by Segment
FNB - South Africa
FNB Estate Agent Survey and house price growth estimates by area value bands suggest a “sweet spot” just above the R1m house price level.

It would appear as of late that the “Middle Income” segment, which is the major metro price segment somewhere just above R1m, has developed into something of a relative “sweet spot” in the residential market. As yet, its average price growth improvement has only managed to more-or-less catch up with the Affordable segment, and at 4.8% in the 1st quarter (using Deeds data) is not yet hugely impressive. But it has been the 1st of the 3 higher value segments to show some improvement from late in 2011, and our FNB Estate Agent Survey by segment points to this segment as possibly having the healthiest “fundamentals.

By “fundamentals”, we refer not only to the best demand rating by agents over the past year, but also in terms of the Middle Income segment being estimated to have the lowest “net financial strength-related downscaling due to financial pressure”, as well as having been the most improved segment in this regard since the dark days of 2009.

In terms of balance between supply and demand, as implicitly reflected in the “estimated average time of homes on the market”, the Middle Income segment has been the most improved in this regard from 2009 up until the past 4 quarters.

By comparison, the High Net Worth and Upper Income segments still appear to have been languishing in the relative doldrums, with the 2 lowest demand ratings of the 4 segments, and average times of homes in the past 4 quarters being up at levels similar to the peaks registered around 2009.
FNB Property Barometer Home Buying Estate Agent Survey by segment _ Q1 2012

Property Barometer - Valuers Market Strength Index
FNB - South Africa
In summary, FNB’s Valuers collectively perceived residential demand to have strengthened further in April, but still give a stronger rating to supply than to demand. However, they believe that demand has been growing at a faster rate than supply, narrowing the gap between the supply and demand ratings, which has led to a rise in the FNB Residential Market Strength Index. Important to note, however, is that the Market Strength Index remains below the crucial 50 level (above 50 would constitute a “healthier market” where demand would start to exceed supply).

This implies that, although the FNB House Price Index has recently shown some real growth (i.e. growing faster than consumer price inflation), we should perhaps not expect that house price inflation increase to be sustainable yet. The need for caution, with regard to near term expectations, is increased by the signs of a soft global economic period currently developing.
Household Sector_April Valuers Market Strength _May 2012

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