Price growth in the value of middle-segment homes for which Absa approved mortgage finance (see explanatory notes) continued to slow down up to October this year. The growth in the weighted average nominal value of small, medium and large houses came to only 1% year-on-year (y/y) in October, bringing the average price of a middle segment house to R1 005 800. Revised price growth of 3% y/y was registered in September. On a month-on-month basis the average nominal value of middle-segment homes declined further in October, but the pace of monthly contractions slowed down somewhat over the past three months.And have a look at this graph:
In real terms the average value of homes in the middle segment of the market was down by 0,2% y/y in September this year (up 1,9% y/y in August), based on consumer price inflation tapering off to 3,2% y/y in September from 3,5% y/y in August. The September year-on-year drop in real price levels was the first since November last year, with prices declining in real terms on a month-on-month basis since May this year.
If you've bought in 2009 you've been 'renting from the bank' (and paying 2x-3x the market rent at that) with no price appreciation since 2008 in real terms. In nominal terms you've been doing the same since 2009. Add bond costs on top of that and you've lost a lot of money in the last 2 years.
And all this is happening with 30-year record low interest rates.
20 comments:
I don't believe we has a little peak this year. Honestly, exactly where in SA were pricing increasing in real terms earlier this year? Please tell me ABSA.
Well. you should know by now that 77,32% of all statistics are being made up on the spot.
I am in the distressed property market and its quite wierd to see that at the sheriffs auctions, prices have rocketed upwards yet the traditional selling market is all but dead in terms of price growth.
The speculators are falling over themselves to buy these distressed/repo's properties at prices that are up about 30% from last year (i am talking auction prices).
Maybe speculators know something that everybody else doesnt!!
I don't know much about the auction industry but I must admit that I remain suspicious of bids at an auction. What is stopping the auction company from accepting fake bids in an effort to prop up closing prices to make homes appear more expensive? By doing that the auction guys create a false price inflation in the eyes of real bidders - hoping that those real bidders will eventually bid higher and higher prices on future auctions.
I know it's a different market but I recall going to car auctions and many of the "sold" cars were back on the block the following week. I went to 3 auctions in a row and could see that most of the cars sold were not actually sold at all because the next week they were up for sale again.
Distressed auction prices are up 30% from last year?
Ok, so let's start at 100% before our local "crash".
Most people have indicated prices have dropped around 30% at the auctions. That's down to 70% right.
Now increase 70% by 30% and you get back to 91%. People are falling over themselves to buy at these prices? Really?
I know the above is a simple calc but I must be missing something somewhere. Unless the auction prices last year were 40%, 50% reductions?
At those discounts even I would be trampling people to buy. But for a 10% discount? No thanks. The speculators can speculate.
I've just found this blog... wow.
I share similar sentiments about longer term trends. Nice to know some people think in the same way. It's usually quite difficult to convince any civilized people that house prices don't always go up.
Having said that not all areas move the same way, and ideally I'd like to own a 3 bedroom flats in the CBD. Of course I understand the premise of renting until prices trough, but market timing is also difficult.
Does anyone have equivalent data to this for Cape Town?
UK housing market
http://www.moneymovesmarkets.com/journal/2009/5/26/are-uk-house-prices-close-to-a-trough.html
It's interesting to see that income/price ratio has been increasing in the UK over the last 30 years (structural trend?).
Just playing devil's advocate, here are some other things that may make SA different to Spain/USA/UK... We primarily export commodities (increasingly to China), so we may be set to ride that wave for some time, even if they have periodic set backs. That should strengthen our currency and make us richer.. (although make foreigners less likey to purchase, unless they are speculating). Also that Cape Town is a desirable place to live compared with other cities around the world, you'd expect the price of housing here to catch up with that of Malibu given purchasing power parity over the longer term? no?
I've seen people say things on this blog like the next time to buy is 2020? Never seen a bear market in property for 10 years... maybe Japan, but then there's deflation there on everything . The UK's last serious decline was from 89 to 93 and it took you to roughly 98 to make your money back in both real and non-real terms. BUT the decline was only 4 years.
Please share your thoughts... what are the odds that this bubble is more of a structural post apartheid trend. And if not, what else would you own? Agricultural stocks?
Gold bought with dollars was a good trade, Gold bought with rands hasn't done so well recently. Property and other real assets in SA might be good bet when priced in dollars... obviously putting the money in the bank may be better...
"what are the odds that this bubble is more of a structural post apartheid trend."
100 to 1. You just hit the nail on the head there DMG. The rand buys a 10th of what it did in the mid nineties. The SARB has printed tons of money, the SARB balance sheet has expanded 10 fold since 94, mostly government debt.
The accolades and cult status of Trevor Manuel and Mboweni are based on sheer ignorance, they presided over debasing the rand and its losing about 90% of its purchasing power. Its treasonous since the mandate of the Reserve bank is to actually protect the currency, not destroy it. Furthermore they actually promise to debase it by 3 to 6% a year. But hey everyone and their dog wants a debased rand; make it weaker its good for the economy and house prices!
So now you know where you stand in the madness. But hey they probably thought this time was different, the great M&M would outsmart 3000 years of monetary history.
That brings us to gold which is just telling you that the madness over the water is greater than the madness here. How long will that last?
Personally I like being my own central bank. Gold is 100% equity with no counterparty risk, rands are just an unrealized claim in the system. How can you denote your wealth in someone elses debt? Physical gold is not a commodity to trade, its a wealth reserve asset, go ask a central banker.
And btw money in a shoebox does not earn interest. The interest from the bank is payment for investment risk, its not because its a safe place, they go bang you get nada.
"Be your own central bank".. You obviously listen to Marc Faber ;)
I'm very bullish on Gold and have significant exposure, but that's not the thrust of this blog. I know all the arguments that people here would make against property in SA. Everyone here is obviously quite contrarian. I want to know if there is a case FOR property in Cape Town specifically besides the obvious "housing always is a good investment".
I've heard say that cities with lots of land did worse abroad than cities without much room to build. Vegas, LA, Miami did a lot worse than NewYork, London etc. Not sure where that puts Cape Town.
For example... here's a purchasing power parity comparison of NYC and Cape Town.
http://www.numbeo.com/property-investment/compare_cities.jsp?country1=South+Africa&city1=Cape+Town&country2=United+States&city2=New+York,+NY
Rent is a quarter of NYC, property is a 7th, and salary is over half. Obviously there are supply and demand differences... but on that measure you'd expect some property increases from here to be valid...?
I'm weary of simply thinking that what goes up must come down. History tends to rhyme, not repeat... and SA is definitely not quite in the same story as some of the developed world bubbles... on the other hand we're not that different either.
It's a good argument that SA is a in a bubble, but is it the right one? Always worth re-examining.
"And all this is happening with 30-year record low inflation rates."....
posted by CT Bubble at 10:23 AM on Nov 4, 2010
No, no, no ... you got it wrong.
Do a graph med aid premium increases,comprehensive household insurance increases,water increases, electricity increases and the price of a spur burger.
And very important - do that graph from 1970 till today.
THEN you will see the REAL inflation rate and how our currency was debased at the behest of the world bank and IMF.
We do NOT have a low inflation rate.
Oops, I meant interest rates. Of course low interest rates boost inflation so you're still right, I'll fix the post text.
Maybe this question goes against everything that this BLOG stands for, but have you considered analysing the areas of Cape Town which are currently the best to invest in?
Now before I get slated on this request, may I add that I do believe that the current Cape Town property market is overpriced & overhyped just like London is. But is it possible to analyse the areas of Cape Town which when the market does change will record the best growth and rental demand? Any views and opinions are obviously appreciated !
Eric S Doms said...
Maybe this question goes against everything that this BLOG stands for, but have you considered analysing the areas of Cape Town which are currently the best to invest in?
I think it's the sub R450k areas in the North. The rent income vs bond costs (plus rates and levies) is quite good in these areas.
For example there are flats that sell for around R400k these days that are being rented out at R3,500 per month. And the rates and levies on these places are usually quite low.
Try and get a yield like that anywhere close to the Mountain!
@ Anon
When you say 'sub R450k areas in the North', do you mean the Northern Suburbs?
Durbanville, Bellville, Brackenfell, Welgemoed?
But I don't want to live there... I want to live by the Mountain! How do you account for that emotion in prices? Could rents rise to match prices? If prices fall around the mountain... all the better! To me there is some kind of natural premium there... but it really should be reflected in rents.
Eric S Doms said...
@ Anon
When you say 'sub R450k areas in the North', do you mean the Northern Suburbs?
Durbanville, Bellville, Brackenfell, Welgemoed?
Yeah, those ones... The places people make fun of.
If you work out there it's not so bad living there. Cheap, lots of parking, close to the winelands. I might get shot of saying this but I consider it a better investment than abandoned warehouses in Salt River and Obs.
DMG said...
But I don't want to live there... I want to live by the Mountain!
I've lived in the City Bowl and in the Northern Subs. Both have their positives and negatives.
However, I have noticed over the years that the city has become very jam packed.
Maybe it's the conversion of all the office buildings into flats? Don't cities have to grant planning permission and study the impact of such drastic changes?
I work in the N Subs and it got to the point where I asked myself. Why am I commuting every day? Why am I battling to find parking everywhere? In summer the place is jam packed with holidaymakers. My view could disappear at any time if some piece of Euro Trash erects a five storey mega mansion in front of my house.
Too much stress... to be close to the mountain? Not for me anymore...
@ DMG & Anon
You've just reiterated my exact thoughts on 'North of the Boerewors Curtain' :) Thanks !
It seems then that the ultimate would be is to have your buy-to-lets in the North whilst using the rental income (hopefully) to pay your rent / mortgage in the South.
DMG. Not Faber, don’t listen to him much, think it was Jim Rickards on King World News. Makes sense when you put it like that doesn’t it? I hope that significant exposure is physical, 100% allocated and separately audited otherwise it’s just paper, but that’s if you dislike paper.
On the face of it the property boom does seem like a bubble. However Zimbabwe had the best performing stock market in the world in the noughties . Make sense? Was that a bubble? No, it was a currency event.
So let’s look at the "property bubble" as a safe haven from near hyperinflation. A 90% loss of purchasing power in 16 years is near hyperinflation. Have we not had the same loss in purchasing power of the rand against property? If this is where we have been, where are we going?
The US is very different. As the reserve currency they can export their inflation. When a dollar comes to SA to pay for goods, often instead of that dollar purchasing rands, the Reserve bank “prints” the rands and deposits this into our economy while keeping the dollar in its “reserve” account. If that dollar went into the currency markets to purchase one of our rands this would drive up the value of the rands vs the dollar making our exports less competitive. Hence we experience inflation and a weak currency courtesy of the SARB policies and the $IMF system. The US often gets our goods for mere paper and suffers no inflation. But now the US wants inflation which means we get the deflation!
So the SARB has stepped up this process by buying dollars to try weaken the currency, this is highly inflationary. Will they win out against massive QE looking for yield? I dont think they can, the US has just dumped a small QE2 which is actually twice our GDP. The SARB will have to print up more than a trillion rand over the next few years to keep pace with this. We are outgunned with an economy that is a mere 2% of the US ;) - One for asset deflation
Secondly the SARB has been monetizing Government debt to pay for its policies as described in my previous post. Where do you think the money for this new healthcare cover and extra jobs by 2125 are coming from? (I suppose some genius in government looked at Obamacare and said hey that will get the economy going, the phrase unfunded liability of no consequence to these dolts) - One for inflation
Thirdly rising oil prices and commodities due to tanking dollar, this is a win and lose. Rising electricity prices. Income now being diverted to pay for these expenses – Two for asset deflation
Lastly the populace is highly indebted, economy is weak so increase in the money supply/velocity due to economic activity and lending is unlikely for a while or will be small. A look at the M3 stats bear this out, a dramatic slowdown. – Three for asset deflation
Exchange controls are practically abolished, stimulus being pumped in, dollars being purchased. God forbid we should tax speculative inflows, how would the bankers make money? This is called fighting deflation IMF style which is obvious from the above.
So with these conflicting drivers and a different perspective on the bubble, where would you say that property goes?
OK so I hear its all overpriced but assuming I NEED to buy in the Southern Suburbs for proximity to friends, business meetings and UCT/Jammie what are the value considerations for an apartment in Rondebosch, Rosebank, Claremont etc. Are there some better blocks than other - and new blocks( the Claremont, Montclare etc) versus older ones? Any recommendations out there?
Post a Comment