The Reserve Bank cut the repo rate 50bps. That means property is going up right?
20 comments:
Anonymous
said...
Actually, I am starting to consider buying, the rentals are getting to the point where a bond is starting to look attractive. I'm talking about the R500k price bracket.
I dabble a bit in trading - someone published the bond rate graph of SA recently and what struck me was that it seemed to follow the Elliot wave principle of 5 changes in short term trend direction then a major change in the over all trend direction.
There has been a downward major trend in recent years but the 5 mini trend changes have also all happened. The Elliot wave principle, which it seems to have followed in the past, indicates that a major trend reversal, ie UP, is now imminent and will continue for many years.
Over priced houses, a debt ridden population, and rising interest rates can mean only one thing for house prices - down.
This cut wont save the bubble. Since 2006 i've been waiting and like i've said to others...It will come...just be patient
WRT interest rates in SA. I find it amusing how these local "bulls" (in property/stocks etc) dont find it worrying that the Reserve Bank are still cutting rates. The rest of the world are looking at starting a rate hiking cycle...here we are still cutting. I dont see global markets hiking for a long time but the fact that we lagging soo far behind is worrying.
Regardless...world and local markets will (and currently are) heading for a double dip. The ZAR will weaken and property will come down big time here. I laugh at "property experts" giving all type of reasons why property will rise.
Cash is king. Stocks, bonds and property are way over priced. If you can move some ZAR into EUR and GBP.
"The latest Cape Metro FNB Property Barometer reveals that just over 15% of home sellers in the second quarter of 2010 sold because they were forced to do so by financial pressure or as a result of having their homes repossessed by a bank.
"The 15,5% was some 3% higher than the number selling to upgrade their homes in the same quarter – a complete reversal from the situation in 2006 – 2007."
OK, let's take a deep breath and read that again slowly...
Fif-teen per-cent.
So every seventh sale in the quarter happened at the barrel of a financial gun, and there are STILL people denying that the SS Property Market is unsinkable?
Still, I suppose the band played on while the Titanic was going down - no reason the perma-bulls wouldn't do the same as the Cape market goes down by the stern.
I think people are so used to accepting the reality they're presented with, when it changes they cannot adapt.
Talk to your average babyboomer and it is beyond their fathomable comprehension that property can actually remain stagnant, or depreciate in value. It's just never been a reality. For those who owned property for 40 years and longer, maybe, but the rest?
The same holds true for sellers who believed that no matter what, they will sell their property for more than what they bought it for.
Lowest interest rates in 30 years, and still there's nobody out there. The news has Estate Agents believe that come summer, prime selling season, buyers will flock to the market as if it's just a debt driven trough. Come summer most have accepted that they cannot afford a house and will buy a new car, holiday in Plett, and Christmas presents instead. Flood me with your fancy figures of disposable income vs debt ratios; hallucinations of graphs referencing world cup positively effecting property; talk of it being the Banks fault or the NCA; and crazy talk of recession being the fundamental cause of this failure. I spit at you.
The reality is not a combination of numbers and stats, it's not something Synovate conjured up out of it's asshole. It's as simple what you can see with your own two eyes:
An average house in Newlands: >= 3 bar. An average house in Durbanville: >= 2.5 bar. An average house in Tamboerskloof: >= 3.5 bar.
All of which were going for a million and under 10 years ago.
Too fucking expensive.
Unless I missed the memo, the average combined salary needed to repay the R30 k p/m needed for those homes at 100% bond has to sit somewhere at R90 000 p/m, so R45 000 each? And people are wondering why they not selling?
I remember around the years 2000/2001 how it was possible to buy flats in Seapoint for R350k. Yes, R350k! And new townhouses in Greenpoint for R600/R650k. Both these properties are now sitting around the R1.5m and R3m marks.
The joke is that most of the people who could afford these properties back then would in no way be able to afford them today on their inflation "increased" salaries.
That is the problem with the property market, as per Anon above, it's too fucking expensive. Period.
There are reasons why hardly anything is selling because there are different kinds of sellers out there.
1. They bought their property near or at the height of the boom, are possibly now in negative equity and can't afford to sell so they are holding out for increases in value.
2. They bought property 6/7/8 or more years ago and have miniscule loans in comparison to their "value". This huge increase is all a "profit margin" and greed won't allow for a reduction in profits.
3. They have no option but to sell because of financial pressures. These are the only sales at the moment, the distressed auction sales.
Let’s have a little look at how good property is in gold terms, just for a different angle. I read an article a few months back by a well known estate agent who crowed about how certain houses had increased in value since the 70’s. The astute investor knows this is just inflation really, but hey? I ran the sums back then for investing in ounces of gold as opposed to buying the property to see what it looked like.
2 Harfield cottages 1972 – R24 000 Today – R4 000 000 Gold – R4 837 289 Average loss by purchasing property – R1789/month
Westerford Hotel 1973 – R285 000 Today – R15 000 000 Gold – R24 213 649 Average loss – R20 205/month
Bishopscourt Home 1978 – R35 000 Today – R12 000 000 Gold – R 2 051 480 Average gain – R21 257/month
Although gold was in the final mania phase of the bull market circa ‘78 and it wasn’t exactly the time to be entering the gold market, I still find a Bishopscourt home at that price, as opposed to the Harfield cottages price 6 years before, a bit suspect. Political upheaval notwithstanding I don’t think the ratios would change that much either over 30 yrs.
Property can bring in an income, but there is maintenance, taxes etc and even running the damn hotel for 30 years as opposed to very simple and affordable storage fees for gold.
The average property price index vs gold oz price turned down in 2005 meaning it started taking less oz’s of gold to buy a property. 2005/6 was the perfect time to roll out of property and into gold. As gold is still in a major bull market and property here is in the beginning of a bear this ratio has plenty of time to run in this direction.
Another thing about bubbles
1 - Most people never see bubbles when we are in them; the common mantra in a bubble is “such and such prices always go up” 2 - The man in the street is fully on board and everyone including the char is an expert with an angle
Neither of the above is the case in gold, can’t say the same about property.
I live between Los Angeles and Cape Town and own houses in both locations. I witnessed what was accurately depicted in David Faber's House of Cards documentry.
The local market is ten times more speculative in nature and hence this correction/collapse will be very sharp. As with any asset class, speculation and irrational exuberance always leads to a correction and re-adjustment. The greater the exuberance....the greater the correction and i'm afraid to say in SA property terms....COLLAPSE.
Expansionary monetary policies around the world are trying to avoid strong currencies vs the dollar which is retreating very fast.
The SARB is doing the same, buying up dollars to try stem the tide. The left and export sector is going to have its way and the rand will be weakened by QE and other methods.
All fiat currencies are in a race to the bottom. Do not be surprised if property values stay the same or even increase while simultaneously collapsing. In other words or a picture rather:
@Eric, IMHO buying property in Cape Town or anywhere else in SA right now is possibly the worst financial decision you could make, short of betting on a three-legged horse. All the basic laws of economics are screaming that our properties need to drop by up to 40 percent from their 2007 peaks.
The three things you need to consider before making up your own mind are:
1) History has shown again and again that when home prices rise above 3.5 or 4 times annual household income, a bubble is forming that ALWAYS bursts.
2) SA interest rates are the lowest they've been in 31 years. The market should be booming, and yet rises are currently barely keeping pace with inflation, and already asking prices are dropping. Activity has flatlined, in short, the market is dead because it's life-blood - first time buyers - have been utterly priced out. Until they can afford to get back in, ours is a zombie market with cash-rich baby boomers buying houses from each other. Totally unsustainable.
3) According to The Economist, SA had the biggest property bubble in the world, something like a 250% increase in seven or eight years. All the other countries that had massive bubbles have since seen massive busts - the US, Spain and Ireland have seen drops of up to 60 percent in some parts. SA's market barely blipped. Our correction is still coming, and when it comes it could be as savage as Spain's or Ireland's.
A lot of people say "it's different here", and in some ways it is. We are unique in the world in that we had the sudden creation of an entirely new middle class, with a couple of million black buyers suddenly entering the market out of nowhere. However, even if you say that half of our bubble was "healthy" thanks to the Black Diamonds, then it still means prices need to fall back 20 percent.
Ultimately it's your choice but I firmly believe that if you buy any time in the next couple of years you are going to find yourself in negative equity.
The Yuan is not as liquid and tradable as the Euro, sterling etc. There are also many political factors to bear in mind with the Yuan peg. Plus I'm not a major bull on China..theres a lot of speculation in that market. Cab drivers in NY are still suggesting investing in China... ex South African "property developers" say China is the place to be....say no more.
I see USD being the ugly sister and the Euro and Pound returning to 1.60 and 2 respectively. that's around 35-40% returns.
@Eric S Doms Generally the 6-9 month lag does apply but in this interest rate cycle we are lagging by more. BOE last rate cut 5 mar-09 FED- 16 Dec 08. Australia/ Israel have been hiking for some time. Australia for the 6th time in 8 months.
WRT the "drop". Unfortunately I don't know the time frame. With most asset classes you can say the faster the rise/exuberance/ speculation the faster the fall. I'd say there is a greater chance of capitulation vs. gradual decline. Either way I'm confident prices will fall and readjust.
US/Europe had major property falls. By comparison we haven't been hit. Why? The ZAR is one of the globes strongest trading currencies. Why? Never mind the socio-political issues, we're still in a cutting cycle.
Something doesn't add up here and as a trader that's where you take a contrarian view or just stay on the sidelines.
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20 comments:
Actually, I am starting to consider buying, the rentals are getting to the point where a bond is starting to look attractive. I'm talking about the R500k price bracket.
It is better to own a home long term instead of paying rent (in fact paying the bond for the landlord so that he can have a property)
I dabble a bit in trading - someone published the bond rate graph of SA recently and what struck me was that it seemed to follow the Elliot wave principle of 5 changes in short term trend direction then a major change in the over all trend direction.
There has been a downward major trend in recent years but the 5 mini trend changes have also all happened. The Elliot wave principle, which it seems to have followed in the past, indicates that a major trend reversal, ie UP, is now imminent and will continue for many years.
Over priced houses, a debt ridden population, and rising interest rates can mean only one thing for house prices - down.
This cut wont save the bubble. Since 2006 i've been waiting and like i've said to others...It will come...just be patient
WRT interest rates in SA. I find it amusing how these local "bulls" (in property/stocks etc) dont find it worrying that the Reserve Bank are still cutting rates. The rest of the world are looking at starting a rate hiking cycle...here we are still cutting.
I dont see global markets hiking for a long time but the fact that we lagging soo far behind is worrying.
Regardless...world and local markets will (and currently are) heading for a double dip. The ZAR will weaken and property will come down big time here.
I laugh at "property experts" giving all type of reasons why property will rise.
Cash is king. Stocks, bonds and property are way over priced. If you can move some ZAR into EUR and GBP.
This on Property24 today:
"The latest Cape Metro FNB Property Barometer reveals that just over 15% of home sellers in the second quarter of 2010 sold because they were forced to do so by financial pressure or as a result of having their homes repossessed by a bank.
"The 15,5% was some 3% higher than the number selling to upgrade their homes in the same quarter – a complete reversal from the situation in 2006 – 2007."
OK, let's take a deep breath and read that again slowly...
Fif-teen per-cent.
So every seventh sale in the quarter happened at the barrel of a financial gun, and there are STILL people denying that the SS Property Market is unsinkable?
Still, I suppose the band played on while the Titanic was going down - no reason the perma-bulls wouldn't do the same as the Cape market goes down by the stern.
I think people are so used to accepting the reality they're presented with, when it changes they cannot adapt.
Talk to your average babyboomer and it is beyond their fathomable comprehension that property can actually remain stagnant, or depreciate in value. It's just never been a reality. For those who owned property for 40 years and longer, maybe, but the rest?
The same holds true for sellers who believed that no matter what, they will sell their property for more than what they bought it for.
Lowest interest rates in 30 years, and still there's nobody out there. The news has Estate Agents believe that come summer, prime selling season, buyers will flock to the market as if it's just a debt driven trough. Come summer most have accepted that they cannot afford a house and will buy a new car, holiday in Plett, and Christmas presents instead. Flood me with your fancy figures of disposable income vs debt ratios; hallucinations of graphs referencing world cup positively effecting property; talk of it being the Banks fault or the NCA; and crazy talk of recession being the fundamental cause of this failure. I spit at you.
The reality is not a combination of numbers and stats, it's not something Synovate conjured up out of it's asshole. It's as simple what you can see with your own two eyes:
An average house in Newlands: >= 3 bar.
An average house in Durbanville: >= 2.5 bar.
An average house in Tamboerskloof: >= 3.5 bar.
All of which were going for a million and under 10 years ago.
Too fucking expensive.
Unless I missed the memo, the average combined salary needed to repay the R30 k p/m needed for those homes at 100% bond has to sit somewhere at R90 000 p/m, so R45 000 each? And people are wondering why they not selling?
SuckerJack
I remember around the years 2000/2001 how it was possible to buy flats in Seapoint for R350k. Yes, R350k! And new townhouses in Greenpoint for R600/R650k. Both these properties are now sitting around the R1.5m and R3m marks.
The joke is that most of the people who could afford these properties back then would in no way be able to afford them today on their inflation "increased" salaries.
That is the problem with the property market, as per Anon above, it's too fucking expensive. Period.
There are reasons why hardly anything is selling because there are different kinds of sellers out there.
1. They bought their property near or at the height of the boom, are possibly now in negative equity and can't afford to sell so they are holding out for increases in value.
2. They bought property 6/7/8 or more years ago and have miniscule loans in comparison to their "value". This huge increase is all a "profit margin" and greed won't allow for a reduction in profits.
3. They have no option but to sell because of financial pressures. These are the only sales at the moment, the distressed auction sales.
Let’s have a little look at how good property is in gold terms, just for a different angle. I read an article a few months back by a well known estate agent who crowed about how certain houses had increased in value since the 70’s. The astute investor knows this is just inflation really, but hey? I ran the sums back then for investing in ounces of gold as opposed to buying the property to see what it looked like.
2 Harfield cottages
1972 – R24 000
Today – R4 000 000
Gold – R4 837 289
Average loss by purchasing property – R1789/month
Westerford Hotel
1973 – R285 000
Today – R15 000 000
Gold – R24 213 649
Average loss – R20 205/month
Bishopscourt Home
1978 – R35 000
Today – R12 000 000
Gold – R 2 051 480
Average gain – R21 257/month
Although gold was in the final mania phase of the bull market circa ‘78 and it wasn’t exactly the time to be entering the gold market, I still find a Bishopscourt home at that price, as opposed to the Harfield cottages price 6 years before, a bit suspect. Political upheaval notwithstanding I don’t think the ratios would change that much either over 30 yrs.
Property can bring in an income, but there is maintenance, taxes etc and even running the damn hotel for 30 years as opposed to very simple and affordable storage fees for gold.
The average property price index vs gold oz price turned down in 2005 meaning it started taking less oz’s of gold to buy a property. 2005/6 was the perfect time to roll out of property and into gold. As gold is still in a major bull market and property here is in the beginning of a bear this ratio has plenty of time to run in this direction.
Another thing about bubbles
1 - Most people never see bubbles when we are in them; the common mantra in a bubble is “such and such prices always go up”
2 - The man in the street is fully on board and everyone including the char is an expert with an angle
Neither of the above is the case in gold, can’t say the same about property.
I live between Los Angeles and Cape Town and own houses in both locations. I witnessed what was accurately depicted in David Faber's House of Cards documentry.
The local market is ten times more speculative in nature and hence this correction/collapse will be very sharp.
As with any asset class, speculation and irrational exuberance always leads to a correction and re-adjustment. The greater the exuberance....the greater the correction and i'm afraid to say in SA property terms....COLLAPSE.
Expansionary monetary policies around the world are trying to avoid strong currencies vs the dollar which is retreating very fast.
The SARB is doing the same, buying up dollars to try stem the tide. The left and export sector is going to have its way and the rand will be weakened by QE and other methods.
All fiat currencies are in a race to the bottom. Do not be surprised if property values stay the same or even increase while simultaneously collapsing. In other words or a picture rather:
http://1.bp.blogspot.com/_wws0xFxPDwA/SJJp_1whcdI/AAAAAAAAAbQ/JkSkgpQAbtg/s320/ZimbabweInflation.jpg
@ex wall st trader
The euro and pound?? Frankly the yuan is a far better bet than these in the long term.
Swiss franc, yen etc
@ex Wall St trader
A few questions:
Isn't the reason that SA lags between 6-9 months in the interest rate cycle compared to the UK, US is because they are our biggest trading partners?
And therefore what affects their market follows a knock on effect to ours?
And if you say that the 'drop' is still to come, will this be over a number of years or suddenly be upon us?
@ rest of Members:
If property in Cape Town is currently overpriced, would it be prudent to hang onto your hat until sanity prevails?
Or would buying now be better so near the change in the interest rate cycle?
(apologies for the overlong post!)
@Eric, IMHO buying property in Cape Town or anywhere else in SA right now is possibly the worst financial decision you could make, short of betting on a three-legged horse. All the basic laws of economics are screaming that our properties need to drop by up to 40 percent from their 2007 peaks.
The three things you need to consider before making up your own mind are:
1) History has shown again and again that when home prices rise above 3.5 or 4 times annual household income, a bubble is forming that ALWAYS bursts.
2) SA interest rates are the lowest they've been in 31 years. The market should be booming, and yet rises are currently barely keeping pace with inflation, and already asking prices are dropping. Activity has flatlined, in short, the market is dead because it's life-blood - first time buyers - have been utterly priced out. Until they can afford to get back in, ours is a zombie market with cash-rich baby boomers buying houses from each other. Totally unsustainable.
3) According to The Economist, SA had the biggest property bubble in the world, something like a 250% increase in seven or eight years. All the other countries that had massive bubbles have since seen massive busts - the US, Spain and Ireland have seen drops of up to 60 percent in some parts. SA's market barely blipped. Our correction is still coming, and when it comes it could be as savage as Spain's or Ireland's.
A lot of people say "it's different here", and in some ways it is. We are unique in the world in that we had the sudden creation of an entirely new middle class, with a couple of million black buyers suddenly entering the market out of nowhere. However, even if you say that half of our bubble was "healthy" thanks to the Black Diamonds, then it still means prices need to fall back 20 percent.
Ultimately it's your choice but I firmly believe that if you buy any time in the next couple of years you are going to find yourself in negative equity.
It all depends on what YOU see on the horizon Eric...
I see Malema & his entourage poised to grab,grab,grab.
The Yuan is not as liquid and tradable as the Euro, sterling etc.
There are also many political factors to bear in mind with the Yuan peg.
Plus I'm not a major bull on China..theres a lot of speculation in that market. Cab drivers in NY are still suggesting investing in China... ex South African "property developers" say China is the place to be....say no more.
I see USD being the ugly sister and the Euro and Pound returning to 1.60 and 2 respectively. that's around 35-40% returns.
@Eric S Doms
Generally the 6-9 month lag does apply but in this interest rate cycle we are lagging by more.
BOE last rate cut 5 mar-09
FED- 16 Dec 08.
Australia/ Israel have been hiking for some time. Australia for the
6th time in 8 months.
WRT the "drop". Unfortunately I don't know the time frame. With most asset classes you can say the faster the rise/exuberance/ speculation the faster the fall. I'd say there is a greater chance of capitulation vs. gradual decline. Either way I'm confident prices will fall and readjust.
US/Europe had major property falls. By comparison we haven't been hit. Why?
The ZAR is one of the globes strongest trading currencies. Why? Never mind the socio-political issues, we're still in a cutting cycle.
Something doesn't add up here and as a trader that's where you take a contrarian view or just stay on the sidelines.
@ ex Wall St trader & Anon
Appreciate the insights.
Thanks :)
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