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2 May 2013

Property Barometer - April 2013 House Price Index
FNB - South Africa
OUTLOOK…..WE’RE STILL CAUTIOUS
Although we have seen recent improvements in both the FNB House Price Index growth rate as well as in various responses in our FNB Estate Agent Survey, our outlook for residential property remains a “cautious one”. This is because many household sector financial and consumption numbers have actually been deteriorating. These include slowing real household disposable income growth through 2012, deteriorating consumer confidence, and a broad slowing in growth in real retail sales.

As residential property depends on the purchasing power of that same household sector that supports the retail sector, it remains difficult to visualise a sustained strengthening in residential demand when household and consumer sector numbers are going the other way.

And we don’t envisage any significant improvement in real disposable income growth in the near term. Government is gradually raising the effective income and wealth tax/income ratio to fund its widening fiscal deficit, while local councils and utilities are raising their taxes and tariffs significantly too. In addition, we’re not forecasting any interest rate cutting in 2013. On top of this, while we have pointed to domestic growth improving somewhat since late-2012, average economic growth for 2013 is forecast to be 2.4%, little different from last year’s overall 2.5%. And indeed recent global economic data doesn’t appear overly encouraging.
FNB Property Barometer April 2013 House Price Index

Credit and mortgage advances
Absa - South Africa
Marginally lower growth in credit and mortgage balances
Credit extension in the South African private sector (households and the corporate sector) showed growth of 7,8% year-on-year (y/y) in the first three months of 2013. This brought the value of outstanding credit balances in the private sector to an amount of R2 467,4 billion at the end of March. Growth in private sector credit extension was 7,9% y/y in February.

Growth in the value of outstanding credit balances in the household sector, comprising instalment sales, leasing finance, mortgage loans, overdrafts, credit card debt, and general loans and advances (mainly personal loans and micro finance) was lower at 9,6 y/y at the end of March compared with 9,8% y/y in February and a recent high of 10,4% y/y in November last year.

The components of household credit balances that continued to show relatively strong growth up to March, are unsecured credit (comprising personal loans, micro finance, credit card debt and overdrafts), growing at 26,7% y/y, and instalment sales credit, growing at 19,4% y/y. However, growth in both these two credit components has been slowing down over the past few months. Growth in unsecured credit peaked at 31,6% y/y in November last year and growth in instalment sales credit reached a high of 21,2% y/y in August 2012. Growth in outstanding household mortgage balances slowed down further up to March this year.
Credit and mortgage advances Mar 2013

Growth in industrial rentals heating up, but we’re not out of the woods yet
Rode - South Africa
The growth in industrial rentals is slowly heating up, seemingly benefiting from the lagged impact of declining industrial property vacancy rates.

Evident from the graph which follows is the strong inverse relationship between vacancies and rental growth – exactly as one would expect. Note also how vacancy rates on warehouse and high-tech property dropped during 2010 and 2011, and how since 2011 the growth in prime industrial rentals has heated up. In fact, such has been the acceleration in the growth of rentals that in the fourth quarter of 2012, prime industrial rentals recorded a nationally averaged growth rate of 7%. Disappointingly, this growth failed to be in excess of building-cost inflation, implying that we are, as yet, not out of the woods when it comes to industrial property.
Rode

Joburg inner city property returns beat suburbs
Iol - South Africa
Investing in property in Joburg's inner city is offering greater yields than similar sized apartments in the suburbs, according to a study.

The study conducted by Citiq, a Joburg investment and property management company, was based on sales records from the Deeds Office between 2000 and 2012, and did not include sales in execution, which could distort the figures.

Paul Lapham, the chief executive of Citiq, explained that an inner-city apartment purchased in 2000 would have delivered capital appreciation of 11.5 percent over the past 12 years, while similar townhouses in suburbs such as Greenstone, Halfway House, Winchester Hills, Northriding, Olivedale and Weltevreden Park would have generated capital returns of 10.5 percent a year.
Iol

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