Estate Agents "Ignore the price declines! Keep Buying!"

Folks you don't need me to tell you: Never ever listen to an estate agent when it comes to getting an opinion about property.

SA’s property market’s soft landing nothing to fear - Seeff

SA’s property market is currently having a soft landing, which will put it in a strong position to spring forward from, reckoned top realtors.

“Given that almost a decade ago, we survived an interest rate of 25%, followed by eight years of an average of 15%, the current 12% is hardly cause for alarm, says Samuel Seeff, chairperson of Seeff Property.

To translate: "Keep buying! Please for the love of god keep buying!"

The most hilarious quote though is this:

Golding said residential property market analysts are closely watching the US market but contrary to expectations, there doesn’t seem to be a slide in the property market, despite rising interest rates.

Yeah the US property market is totally not in freefall at the moment.

Rate Hikes Ain't Stopping

Everyone was hoping there wouldn't be a rate hike before Christmas but with rampant consumer spending it's becoming clear that a hike before the 25th of December is a dead certainty and after that Reserve Bank Governor Mboweni is going to pause right? Right!?! Well maybe not. It seems economists are now expecting rake hikes into 2007 as well. So why doesn't Tito stop pussy footing around with 50bp hikes and just raise it 100bp already?

Western Cape IOL Index

Number Crunching Time

I love my readers because sometimes when I'm feeling lazy they do all the hard number crunching for me. Allow me to quote parts from a voluminous email from reader CJ:

Last year out of curiousity and frustration that we
were being told that the average SA property was
R750,000 I added the average houseprice of the midweek
Cape Times property supplement - the average price
available to Capetonians looking for a house was R2.2
million. The average house price in the UK at that
time was R2m - DON'T tell me SA property is cheap. The
salaries and rents here are at least 3 times lower yet
the house prices being advertised are more ... In the
first section of the Weekend Argus property supplement
the average price was even higher at R3.2m OUCH

...

have a nice 2 bedroom duplex in the city bowl, nice
view, security complex. The rent is by no means cheap
- more than a secretary's salary. Yet when I go over
the numbers I would still be a fool to buy.

Lets say I want to stay here for 3 years. What is the
difference if I rent for 3 years or if I buy the house
now and then sell in 3 years.

Well, at present interest rates at a full bond, and
assuming I sold for the same price as I bought, I
would need 11.5 years rent to cover the interest
payment, and 7 years rent to cover the buying and
selling costs. So If I rent I lose 3 years rent, but
if I buy I lose the equivalent of 18.5 years rent -
well that is a no brainer. Ahh, they all cry, the
price will go up. Well lets assume that even though
the prices in Capetown have gone up between 300 and
900% in the last 10 years, these crazy increases will
keep on happening - the house will still have to go up
more than 50% over those 3 years before it becomes
cheaper to buy than to rent. More realistically, the
selling price will drop. If the price is 10% lower
then my 3 years "investment" loses me the equivalent
of 22 years rent, at a 20% drop I lose 25 years rent,
and a 30% crash will lose me 28 years rent.

Wow, this is a toughie - so lets see, I can live here
for 3 years and pay 3 years rent or I can buy and risk
having to end up paying as much as 28 years rent for
exactly the same thing in the hope that the price
increases more than 50 % and I can make a capital
profit.

...

Here's another interesting situation involving the
'foreign investors' - lets say you bought a cape town
flat for R2m last year - your brought over R1.34 m to
cover a 50% deposit and enough to pay the purchase
costs and the 1st years interest on a local bond. The
pound exchange rate is 10.5.

You now decide to sell. You pay selling costs, 5%
foreigners tax, the balence outstanding and then send
the rest home to the UK at 14 to the pound exchange
rate. If you manage to sell at the same price you
bought, your "investment" has lost you R1.1m. OUCH
again. Wait another year and if we get a 30% drop in
price then your losses are now in the R1.7m area if
the exchange rate stays the same.

Alternatively, the investors could have rented the
exact same house and put their deposit in a UK bank at
6 % - the interest would cover the rent and there
would be R50000 left over for spending money - now
that sounds like a better idea than losing a million
or two by buying the exact same property.

If only the rest of my life was as easy as coming up with this entry.

Thanks CJ!

Western Cape IOL Index

The Rockwell: Sales Are Stagnant

When we last checked in at the Rockwell two months ago sales seemed to be slowing down, as they had sold 83 units out of a total of 150. Two months later they've increased that sales count by grand total of one 1 (according to their availability page - I counted 84 sold).

Western Cape IOL Index

Black Middle Class Doesn't Exist - Saki Macozoma

One of the justifications for the large run up in South Africa's housing prices was the emergence of the 'black middle class', something that is brought up as the saviour of almost every possible economic woe. High housing prices unsustainable? They are thanks to the 'black middle class'. Massive deficit due to the retail sector importing foreign goods? It's alright the 'black middle class' will keep on buying imported goods. And so on and so forth.

Except there could be a slight problem. The 'black middle class' might not exist at all:

The so-called black middle class does not really exist, says politician-turned-businessman Saki Macozoma.

"It is a (mere) conceptual construction," Sake Beeld reported him as saying on Wednesday.

Macozoma, formerly an African National Congress MP and currently chairman of financial services group Stanlib, said the black group concerned did not have much of a "class consciousness", it should rather be described as a category.

The group could not sustain its own continued existence as members either rose rapidly into the high income group or fell back into the lower income groups.

On top of this, the group lacked the organised political mobilisation required to defend its economic progress.

Real decline in house prices

Real decline in house prices

House prices in October grew at the slowest rate in more than six years, according to the Absa House Price Index (HPI) and the lows are expected to continue.

Last month, nominal house price growth of 12,7% year-on-year was recorded. This is the lowest growth since January 2000, when it was 11,8%.

In real terms, year-on-year growth of 7,8% was recorded in September compared with a revised growth rate of 8,1% in August, based on the headline consumer price index.

The average nominal house price growth for the first ten months of the year came to 14,7% and the bank forecasts a growth rate of 14% for the year.

Next year, it projects house price growth of around 6%. The bank noted that for the first time in seven years, prices are expected to decline by almost 2% in real terms.

Western Cape IOL Index