"The current property recovery may be relatively short-lived and of limited magnitude, FNB said on Friday.
"The year 2010 could represent a "mini-peak" in the property cycle, the bank said in a statement.
"According to FNB home loans strategist John Loos, the seeming end of interest rate cuts has led to the question: how much further can the residential market recovery go?"
****
Holy cow. If they're already asking 'how much further can the recovery go' - when the 'recovery' has only been a tiny rise in prices - then the end truly is nigh.
@Anon, that Economist graph is terrifying - the SA curve soars off into the stratosphere compared to the other countries that also had insane bubbles like the UK, US and Spain.
The next question will be: How is the expected increase in electricity prices going to affect house prices? Also add in the effect of rising interest rates, surely they must go up again. "The year 2010 could represent a "mini-peak" in the property cycle, the bank said in a statement”. What are they trying to tell us with vague remarks like these? Is Mr. Loos really clue Loos or will his masters have his balls if he spoke the truth?
Being SO close to town & all Highways,I bought a free standing house here in 1995 expecting these suburbs to go the Observatory,Mowbray,Woodstock gentrified route,thereby attracting the usual plethora of trendy artists and young professionals.
Well - did'nt happen and ain't going to happen ever apparently.
As a matter of fact,it has even worsened from poor white valley,to Little Congo and Nigeria.
So,please voice your opinions as to WHY on earth these 3 suburbs just WON'T pick up, decade after decade after decade. It's as if they're jinxed,stuck in a time warp.
I mean - Rugby,Brooklyn,Ysterplaat are all so close to town and the beaches. The freestanding and semi-detached houses/plots are generous in size by todays' standards. The property prices and rates are a joke by comparison to other suburbs. 39 cents a square metre in my case.
Location doesn't refer to just the geographical area in which a house / suburb is in.
If you have a mansion in a desired location then things are great. When a squatter camp springs up around your mansion then your location is no longer desired and things are decidedly not great.
The fact that you refer to it as little Congo / Nigeria is why no one else wants to move in there. Demand for your location is effectively dead.
I've also read that there are a more than a few slum lords in that part of town which will further discourage people from wanting to move in there.
Commercial Cataclysm: Moody’s/REAL Commercial Property Price Index (August 2009)
The most recent results of the Moody’s/REAL Commercial Property Index continues to suggest that the nation’s commercial real estate markets are now firmly experiencing a tremendous downturn with prices plummeting a whopping 32.80% on a year-over-year basis and a stunning 40.62% since the peak set in October 2007.
Capmark Files for Bankruptcy With $21 Billion in Debt
Capmark Financial Group Inc., the lender owned by companies including Goldman Sachs Group Inc. and KKR & Co., filed for bankruptcy protection after posting a second-quarter loss of about $1.6 billion.
The company listed consolidated debt of $21 billion and consolidated assets of $20.1 billion as of June 30, according to Chapter 11 documents filed yesterday in U.S. Bankruptcy Court in Wilmington, Delaware. Forty-three affiliates also sought protection.
The 'prices against income' graph on the Economist link is perplexing. Perhaps they are taking into account the average income of the whole population...which is incredibly low since most are probably living wage earners or even less, or homeless unemployed types. South Africa is a third world country, but those of us who live in the cities and have professional jobs do make a decent living comparitively. In addition to that, many S Africans work overseas and come back with a huge wad to throw down on their property's down payment, or foreign buyers come and jack the prices up. Don't get me wrong, property IS OVERPRICED in South Africa, but maybe not to the extent that the Economist makes it out to be.
And to add to that, a few short years ago...say around '02, a couple could go to Korea or Thailand and teach English for a year, come back with 24,000 dollars (240,000) rand and could have bought a small apartment...CASH! Or they could have stayed two years, come back with half a million, and bought a house...CASH! Those same properties would run them around 600grand and 1.8 million respectively.
My point is that this was a very common practice that was taken advantage of by many many young S Africans. But, today this could not be accomplished due to overinflated prices and a weak dollar.
There you have it - SA had the biggest house price bubble in the world, shown by the highest real price increases. And the correction has only just started.
Notice Japan has continuously dropped over the same period.
The graph says it all - we really have no choice - we need to return to the baseline and the only way to do that is to dive dive dive...
Ok, so on this blog at least we have a broad consensus that South Africa in general and CT in particular has a humungous property bubble on their hands. We can argue for a decade long "L" shaped recovery or massive 60% price crash and won't know until it actually happens. What I want to know what effect a deflating bubble will have on the banks and the wider South African economy. A house price bubble popping has wider implications than when the best time to buy is, but everyone here seems to behave like everything will be exactly the same as it is now, except houses will be 20/30/60% cheaper. If the bubble does deflate violently like it has in Ireland or the US, what is going to happen to mortgage providers? Are we looking collapsing banks to go with our newly affordable Tableview flats? Considering that SA's FIRE services sector now accounts for over 20% of GDP, surely this is a problem for everyone even if they live in a shack. Who do our banks owe? Can SA be turned into a debt zombie nation like Iceland or Latvia? (the latter of these two countries are presently in talks with the IMF on how much they should shave off average the Latvian's life expectancy in order to make repayments).
I'll confess I'm clueless as to the inner workings of South African banks but I would like to find out more. Seeing as we have this consensus it just seems rather odd not to examine wider implications.
But FirstRand chief economist Cees Bruggemans sees another important driver of asset prices, including property, over the next 18 months — the resurgent dollar “carry trade”. Now that the world is saved, the attractions of low-return safe havens like US government bonds are diminished and “those with rising risk appetite borrow in countries with low interest rates, to invest in countries that give high returns,” he says.
They pocket the difference between the two interest rates, called a “carry”. Bruggemans says investors in the SA rand, for instance, “get two bangs for their buck, funding low while investing high and reaping the advantage of the weakening dollar, the global carry trade funding currency of choice, and boosting the value of the rand”.
As global interest rates will remain low for 18 months or more, the carry trade will continue through 2010, pushing the rand below R7/US, improving the inflation outlook and moving prime interest rates into single digits for the first time in decades,” says Bruggemans.
Asset markets should boom and the recuperation of housing will accelerate, he adds
http://www.safehaven.com/article-14746.htm
One of the primary goals of having 0% interest rates is to entice banks to employ the carry trade. On the surface, the carry trade supports the Fed's goal of stabilizing the financial system because banks can borrow at near zero while investing in higher yielding government securities. This investment strategy leads to higher bank profits and replenished capital levels. In addition, the carry trade helps fund the federal budget deficit by enticing banks to buy longer-term treasury bonds. While the carry trade may initially seem beneficial, Federal Reserve interference always creates unintended consequences that inevitably outweigh the projected benefits. Below, we attempt to explain the unintended consequences of the carry trade. The Federal Reserve created the housing bubble by trying to alleviate the problems resulting from the technology bubble. Now, the Federal Reserve is using the same play book to solve the problems caused by the housing bubble. Once again, the medicine will prove to have been worse than the disease. By encouraging mass buying of treasuries at unsustainably low rates, the Federal Reserve has created another bubble. With low short-term and long-term interest rates, a falling US Dollar, and growing US Government debt, there is significant risk that interest rates will increase in the near future. When interest rates rise, those who have used leverage to buy financial assets will see their cost of borrowing increase as the assets they own decline in value. Such an outcome will be even worse than the deleveraging that occurred in 2008 because today the economy is much weaker and assets are lower yielding (higher priced). It is feasible that even without loan losses the entire banking system would be insolvent if treasury yields rise high enough.
I've noticed that in some area in the southern suburbs house prices have not deflamed as much if at all compared to the northern suburbs. In areas like lansdown, crawford, rondebosch east people are still trying to sell for R1 000 000 to R1 500 000 for normal 3 bedroom houses. I don'y undersatand this as in the Northern Suburbs one can get a far better house in a far better area. Can anyone eplain this?
Fireman - those high prices are just sellers greed trying their luck before the world cup. Wait till 9-14 months AFTER the world cup - then we're going to see an AVALANCHE of sales in execution.
I agree with anon above re the World Cup. At the moment that is the horizon and the grail.
To me it could go either way. Im sure many criminals further north are on their way to SA, not mentioning the ones here. A few hijackings, rape and murder of tourists will send all these possible investors packing.
Don't you just love this little desperate anonymous property bull who keeps popping up squealing, buy buy buy ... he sounds like a man with a highly leveraged Buy to let empire that is hurting real bad and is so desperate for the good old days to return ...
I see the Argus food basket is MINUS 5% year on year this week - looks like it will be minus 10% in a month or twos time and could even get as low as minus 13%. That's deflation folks, big time. That's falling prices. I'm seeing CPI as below zero this time next year.
My office landlord sees it - only a 1% rent increase per year for the next 2 years.
I find it so funny when the property bulls start calling for a rebound in prices.
Just imagine *if* the market took off again with inflation of say 5% to 10% per year on top of the already high prices? How on earth could that be sustainable in relation to incomes in Cape Town.
There are only so many buyers with dollars and pounds. That cannot sustain an entire market.
Bottom line is that the average household is being asked to spend more and more on a mortgage bond and daily expenses such as electricity, schooling, petrol and security. Income isn't keeping pace.
While I am earning dollars overseas for the next 4 years, common sense tells me that the average Joe, earning Rands, cannot afford to buy an average home.
I have zero doubt that the property market will, at beast, be flat over the next 5 years. A R2 million home today in 2009 will still be selling for around R2 million in 2014.
The 2010 soccer WC might produce a moderate increase in sentiment and prices but that will be a blip on the radar.
If I honestly believe prices will rise then I would take my dollars right now and buy a home in CT and not get burnt in 4 years' time when I return to CT. But I will bide my time...
22 comments:
Tool to compare house prices in different counties, South Africa is scary:
http://www.economist.com/displaystory.cfm?story_id=14438245
'Property recovery may be short-lived'
http://www.property24.com/articles/news/market-news/Property-recovery-may-be-short-lived/10628
"The current property recovery may be relatively short-lived and of limited magnitude, FNB said on Friday.
"The year 2010 could represent a "mini-peak" in the property cycle, the bank said in a statement.
"According to FNB home loans strategist John Loos, the seeming end of interest rate cuts has led to the question: how much further can the residential market recovery go?"
****
Holy cow. If they're already asking 'how much further can the recovery go' - when the 'recovery' has only been a tiny rise in prices - then the end truly is nigh.
@Anon, that Economist graph is terrifying - the SA curve soars off into the stratosphere compared to the other countries that also had insane bubbles like the UK, US and Spain.
The next question will be:
How is the expected increase in electricity prices going to affect house prices? Also add in the effect of rising interest rates, surely they must go up again.
"The year 2010 could represent a "mini-peak" in the property cycle, the bank said in a statement”.
What are they trying to tell us with vague remarks like these? Is Mr. Loos really clue Loos or will his masters have his balls if he spoke the truth?
Guys & girls - Let's talk Rugby/Brooklyn/Ysterplaat.
Being SO close to town & all Highways,I bought a free standing house here in 1995 expecting these suburbs to go the Observatory,Mowbray,Woodstock gentrified route,thereby attracting the usual plethora of trendy artists and young professionals.
Well - did'nt happen and ain't going to happen ever apparently.
As a matter of fact,it has even worsened from poor white valley,to Little Congo and Nigeria.
So,please voice your opinions as to WHY on earth these 3 suburbs just WON'T pick up, decade after decade after decade.
It's as if they're jinxed,stuck in a time warp.
I mean - Rugby,Brooklyn,Ysterplaat are all so close to town and the beaches.
The freestanding and semi-detached houses/plots are generous in size by todays' standards.
The property prices and rates are a joke by comparison to other suburbs.
39 cents a square metre in my case.
So why haven't these suburbs ever boomed ??
Thanks people.
Hi Anonymous: Rugby/Brooklyn/Ysterplaat
Location Location Location hey?
Location doesn't refer to just the geographical area in which a house / suburb is in.
If you have a mansion in a desired location then things are great. When a squatter camp springs up around your mansion then your location is no longer desired and things are decidedly not great.
The fact that you refer to it as little Congo / Nigeria is why no one else wants to move in there. Demand for your location is effectively dead.
I've also read that there are a more than a few slum lords in that part of town which will further discourage people from wanting to move in there.
LS
Commercial Cataclysm: Moody’s/REAL Commercial Property Price Index (August 2009)
The most recent results of the Moody’s/REAL Commercial Property Index continues to suggest that the nation’s commercial real estate markets are now firmly experiencing a tremendous downturn with prices plummeting a whopping 32.80% on a year-over-year basis and a stunning 40.62% since the peak set in October 2007.
http://seekingalpha.com/article/168853-commercial-cataclysm-moodys-real-commercial-property-price-index-august-2009
Capmark Files for Bankruptcy With $21 Billion in Debt
Capmark Financial Group Inc., the lender owned by companies including Goldman Sachs Group Inc. and KKR & Co., filed for bankruptcy protection after posting a second-quarter loss of about $1.6 billion.
The company listed consolidated debt of $21 billion and consolidated assets of $20.1 billion as of June 30, according to Chapter 11 documents filed yesterday in U.S. Bankruptcy Court in Wilmington, Delaware. Forty-three affiliates also sought protection.
http://www.bloomberg.com/apps/news?pid=20601103&sid=a2rZBDNRr73w
Anonymous : Economist house price graphs.
OK ouch.
Most worrying are the two graphs, 'Prices in real terms' and 'Prices against average income'
Consider these the inflation adjusted i.e. real instead of nominal value graphs.
Basically SA house prices went up very high and become very expensive for wage earners i.e. incomes did not keep pace.
Now compare the 'Prices in real terms' and the 'House price index' graphs.
For SA in real terms there has been a significant drop while in nominal terms there has been a barely perceptible slide.
This is courtesy of our high inflation rate.
If you perform the same comparison for Britain, Spain or the USA you see much smaller differences due to their much lower inflation rates.
The 'prices against income' graph on the Economist link is perplexing. Perhaps they are taking into account the average income of the whole population...which is incredibly low since most are probably living wage earners or even less, or homeless unemployed types. South Africa is a third world country, but those of us who live in the cities and have professional jobs do make a decent living comparitively. In addition to that, many S Africans work overseas and come back with a huge wad to throw down on their property's down payment, or foreign buyers come and jack the prices up. Don't get me wrong, property IS OVERPRICED in South Africa, but maybe not to the extent that the Economist makes it out to be.
And to add to that, a few short years ago...say around '02, a couple could go to Korea or Thailand and teach English for a year, come back with 24,000 dollars (240,000) rand and could have bought a small apartment...CASH! Or they could have stayed two years, come back with half a million, and bought a house...CASH! Those same properties would run them around 600grand and 1.8 million respectively.
My point is that this was a very common practice that was taken advantage of by many many young S Africans. But, today this could not be accomplished due to overinflated prices and a weak dollar.
There you have it - SA had the biggest house price bubble in the world, shown by the highest real price increases. And the correction has only just started.
Notice Japan has continuously dropped over the same period.
The graph says it all - we really have no choice - we need to return to the baseline and the only way to do that is to dive dive dive...
Property is on the increase again, BUY NOW people!
Anybody who knows what the money market interest rates were over the last 12 months and how they compare to property prices/appreciation ?
Ok, so on this blog at least we have a broad consensus that South Africa in general and CT in particular has a humungous property bubble on their hands.
We can argue for a decade long "L" shaped recovery or massive 60% price crash and won't know until it actually happens.
What I want to know what effect a deflating bubble will have on the banks and the wider South African economy. A house price bubble popping has wider implications than when the best time to buy is, but everyone here seems to behave like everything will be exactly the same as it is now, except houses will be 20/30/60% cheaper.
If the bubble does deflate violently like it has in Ireland or the US, what is going to happen to mortgage providers? Are we looking collapsing banks to go with our newly affordable Tableview flats? Considering that SA's FIRE services sector now accounts for over 20% of GDP, surely this is a problem for everyone even if they live in a shack. Who do our banks owe? Can SA be turned into a debt zombie nation like Iceland or Latvia? (the latter of these two countries are presently in talks with the IMF on how much they should shave off average the Latvian's life expectancy in order to make repayments).
I'll confess I'm clueless as to the inner workings of South African banks but I would like to find out more. Seeing as we have this consensus it just seems rather odd not to examine wider implications.
http://www.eprop.co.za/news/article.aspx?idArticle=11808
But FirstRand chief economist Cees Bruggemans sees another important driver of asset prices, including property, over the next 18 months — the resurgent dollar “carry trade”. Now that the world is saved, the attractions of low-return safe havens like US government bonds are diminished and “those with rising risk appetite borrow in countries with low interest rates, to invest in countries that give high returns,” he says.
They pocket the difference between the two interest rates, called a “carry”. Bruggemans says investors in the SA rand, for instance, “get two bangs for their buck, funding low while investing high and reaping the advantage of the weakening dollar, the global carry trade funding currency of choice, and boosting the value of the rand”.
As global interest rates will remain low for 18 months or more, the carry trade will continue through 2010, pushing the rand below R7/US, improving the inflation outlook and moving prime interest rates into single digits for the first time in decades,” says Bruggemans.
Asset markets should boom and the recuperation of housing will accelerate, he adds
http://www.safehaven.com/article-14746.htm
One of the primary goals of having 0% interest rates is to entice banks to employ the carry trade. On the surface, the carry trade supports the Fed's goal of stabilizing the financial system because banks can borrow at near zero while investing in higher yielding government securities. This investment strategy leads to higher bank profits and replenished capital levels. In addition, the carry trade helps fund the federal budget deficit by enticing banks to buy longer-term treasury bonds. While the carry trade may initially seem beneficial, Federal Reserve interference always creates unintended consequences that inevitably outweigh the projected benefits. Below, we attempt to explain the unintended consequences of the carry trade.
The Federal Reserve created the housing bubble by trying to alleviate the problems resulting from the technology bubble. Now, the Federal Reserve is using the same play book to solve the problems caused by the housing bubble. Once again, the medicine will prove to have been worse than the disease. By encouraging mass buying of treasuries at unsustainably low rates, the Federal Reserve has created another bubble. With low short-term and long-term interest rates, a falling US Dollar, and growing US Government debt, there is significant risk that interest rates will increase in the near future. When interest rates rise, those who have used leverage to buy financial assets will see their cost of borrowing increase as the assets they own decline in value. Such an outcome will be even worse than the deleveraging that occurred in 2008 because today the economy is much weaker and assets are lower yielding (higher priced). It is feasible that even without loan losses the entire banking system would be insolvent if treasury yields rise high enough.
Properties are flying off the shelves in CT at the moment.
If you want a bargain then get out there and buy before 2010 adds 30% to prices...
BUY BUY BUY
I hear LSD is making a comeback on the street drug scene too.
I've noticed that in some area in the southern suburbs house prices have not deflamed as much if at all compared to the northern suburbs. In areas like lansdown, crawford, rondebosch east people are still trying to sell for R1 000 000 to R1 500 000 for normal 3 bedroom houses. I don'y undersatand this as in the Northern Suburbs one can get a far better house in a far better area. Can anyone eplain this?
Fireman
Fireman - those high prices are just sellers greed trying their luck before the world cup.
Wait till 9-14 months AFTER the world cup - then we're going to see an AVALANCHE of sales in execution.
I agree with anon above re the World Cup. At the moment that is the horizon and the grail.
To me it could go either way. Im sure many criminals further north are on their way to SA, not mentioning the ones here. A few hijackings, rape and murder of tourists will send all these possible investors packing.
Now is the best time to invest in Cape Town property! Buy now!
Don't you just love this little desperate anonymous property bull who keeps popping up squealing, buy buy buy ... he sounds like a man with a highly leveraged Buy to let empire that is hurting real bad and is so desperate for the good old days to return ...
I see the Argus food basket is MINUS 5% year on year this week - looks like it will be minus 10% in a month or twos time and could even get as low as minus 13%. That's deflation folks, big time. That's falling prices. I'm seeing CPI as below zero this time next year.
My office landlord sees it - only a 1% rent increase per year for the next 2 years.
I find it so funny when the property bulls start calling for a rebound in prices.
Just imagine *if* the market took off again with inflation of say 5% to 10% per year on top of the already high prices? How on earth could that be sustainable in relation to incomes in Cape Town.
There are only so many buyers with dollars and pounds. That cannot sustain an entire market.
Bottom line is that the average household is being asked to spend more and more on a mortgage bond and daily expenses such as electricity, schooling, petrol and security. Income isn't keeping pace.
While I am earning dollars overseas for the next 4 years, common sense tells me that the average Joe, earning Rands, cannot afford to buy an average home.
I have zero doubt that the property market will, at beast, be flat over the next 5 years. A R2 million home today in 2009 will still be selling for around R2 million in 2014.
The 2010 soccer WC might produce a moderate increase in sentiment and prices but that will be a blip on the radar.
If I honestly believe prices will rise then I would take my dollars right now and buy a home in CT and not get burnt in 4 years' time when I return to CT. But I will bide my time...
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