Tito's property crash "cushion"

SA Reserve Bank governor Tito Mboweni's announcement on Thursday that the key monetary policy interest rate will be left where it is for now, at 12%, is good news for debt-burdened consumers in general.

But those businesses relying on renewed enthusiasm for consumer spending - particularly in the residential real estate sector - shouldn't break out the Champagne just yet.

Property prices and levels of activity in the residential market are expected to get worse and are unlikely to pick up until the middle part of next year, is the prediction from Absa's senior property analyst Jacques du Toit.

Shortly after Mboweni's announcement, Du Toit issued a note cautioning that the "residential market has yet to bottom".

He said the "severe financial strain" caused by surging inflation, higher interest rates and declining real household disposable income growth would continue to negatively influence the affordability of housing. That in turn means less demand for housing.

The prime interest rate charged to the average bank customer is around 15% - about 5% higher than two years ago and has had the effect of pushing up home loan repayments by more than 35%.

"In real terms house prices are expected to decline for the first time this year since 1999, with the possibility of another real price drop in 2009," said the property expert.

"With economic conditions expected to improve in the second half of next year on the back of declining inflation and interest rates, the residential property market is set to recover shortly afterwards," added Du Toit.

Other market watchers are more optimistic, with the expectation in some quarters that buyers who have been waiting on the sidelines to purchase homes will do so soon, now that it looks like interest rates may have peaked or are close to peaking.

Provided there are no more economic shocks - like even higher oil prices - South Africa can expect interest rates to start ticking down from the end of the year, as has been predicted by top economist Cees Bruggemans of FNB (read Interest rates to fall fast - top economist).

Many consumers will be relieved that their debt repayments have not been increased yet again from unbearable levels

Mboweni warned, though, when he announced his decision to keep the repo rate at 12%, that "we're not out of the woods yet" when it comes to various economic "risks".

He cited the "subdued" housing market as well as a dramatic drop-off in sales in car sales among the reasons for his decision to keep rates where they are. 

Herschel Jawitz, chief executive officer of Jawitz Properties, said: "While the decision will obviously not give any relief to homeowners who remain under financial pressure, it will certainly start to stem the tide of falling sentiment.

"Recently, there has been some good news with a drop in the petrol price, a stay on rates, no power outages and the possibility of a settlement in Zimbabwe. This is a far cry from where we were four months ago," he said.

Jawitz noted that, aside from the financial factors like interest rates and consumer prices, sentiment plays a huge part in the residential market.

"We may be nearing the bottom of the property market. It's not certain when the turn will come but at least we will have bottomed out," he added.

Jenny Dugmore, director of Colliers Residential Dugmore, agreed, saying: "This signifies the beginning of an economic turnaround, and will have a significant impact on sentiment."

Jeanne van Jaarsveldt, marketing and finance director of RE/MAX of South Africa, described the interest rate decision as the "first, but small, step toward a property market recovery."

He expects "little effect" on property sales but "does believe it will "lift some of the clouds overhanging property sales and introduce much needed rebuilding of confidence in property ownership, especially among investors".

"The coupling of still too high interest rates and tight credit restrictions will continue to hamstring first time buyers," said Van Jaarsveldt.

Dr Andrew Golding, chief executive officer of the Pam Golding Property Group, said: "From a residential property market perspective it is evident that while the National Credit Act has bedded down in terms of curbing credit, it takes quite some length of time for the stringent measures of higher interest rates to filter through and take effect."

It is likely, added Golding, "that we shall still be experiencing these (effects) for some time to come".

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"While the decision will obviously not give any relief to homeowners who remain under financial pressure, it will certainly start to stem the tide of falling sentiment.

Herschel Jawitz, CEO, Jawitz Properties

 

Comments

 

responses to this article

Affordabilty still a issue The rates stayed the same but the affordability factor is now more important. with the New Credit Act, it is virtually impossible for the average family to afford the average house. Even if rates come down, prices are way too high still to even . .more contemplate buying at those prices. . .less by WTF on August 14 2008, 17:17 Find this comment inappropriate? Report it

As i said yesterday Just like i said yesterday,NCA will drive any market from cars,houses to credit card, Guys just dropp those prices by 40%-50%,offload and start afresh after 6year,This will cut your loses but if u dnt still fine the market forces will force you . .more then,Be honest to urself and think about it is worth and hey if you have decided the drop you can call me i will buy-why not anyway-i m serious i will buy, . .less by Market Watcher on August 14 2008, 18:53 Find this comment inappropriate? Report it

Like you said... Well done, everybody drop those prices, in 6 years time you will pay double or more for the same property........ and the people who by them now will sell it back to you with a grin on their faces...... Then Market Watcher will collect more property . .more and make himself that much richer.... Just like all those insider reall estate traders........ you go boy!!! . .less by Fraudster on August 14 2008, 19:41 Find this comment inappropriate? Report it

The credit crunch is over !!! Bwa ha ha ha! Std Bank phoned me today and offered me a credit card with a R35k limit...bwa ha ha ha...AND I TOOK IT ! tee hee hee hee...let me go help those poor retailers and assist SA with a tiny bit more inflation. Just kidding. I'll use it against . .more the system and make me some more money without paying interest..tee hee..and buy me some distressed property! After all, that money in the credit card doesn't really exist. It gets created out of thin air like the rest of the 90% of credit in the market. Folks should keep their eye on that "leave-a-back-door-open" statement of "we're not out of the woods yet". The dollar is looking strong and could go on testing 1.43 against the Euro in the next 6 months. This could put pressure on the Rand to weaken further and not allow the benefit of lower commodity prices as a result of a stronger dollar. The last dollar correction against the Euro lasted nearly a year. This one started just last month. Price pressure could thus remain to the upside. The flip side could mean more exports and less imports which should help the current account deficit. SA will therefore need to consume less and produce more. It remains to be seen if those lazy protected (o)nion members can rise to the occasion. Don't bet on the consumer and easy credit to rescue the economy. Consumerism is fallacy in anyway!! . .less by Freemarketman on August 14 2008, 20:03 Find this comment inappropriate? Report it

Just giggling at Toti's..oops.. I meant Tito's image I can just imagine one of those little text bubbles next to Tito's head, whispering to himself: "Just look at me...I'm a god like my elite cohorts in government. Surely "The People" must think I'm a god too. Just look at my smug mug. I hold your . .more destiny, (together with the other 11 poepols in the MPC) in my hands. I can make you and I can brake you...yes..yes...yes...first I'll let you imagine you've arrived..and then...then..then I'll break you. First I'll inflate....yes...yes...yes...and then I'll deflate money and credit together with my chinas at the banks until you crack and become another beggar at the robot. Yes...just look at me...I'm a god... I'm in control." Inflation causes depression. Just ask the medical aids about the increasing number of people suffering from depression and stress related illnesses. It's growing fast. Phuc it! I'm tired of trying to educate people about inflation and how they're getting reamed without Vaseline. I've realised most people like being sheep and don't want to think for themselves. They want the government and so-called gurus to change their nappies for them. I'll just go along using my knowledge to become filthy rich on my own. Maybe I'll change my nickname to "FilthyFreeMarketCapitalistPigMan". :-D . .less by Freemarketman on August 14 2008, 20:24 Find this comment inappropriate? Report it

Tenants still call the shots-13-08-2008 Please refer to the above article posted yesterday on Property24-There is no interim future in the Property market even Rentals that your hope is lying on will sink, Drop pricess by 40%-50% or you will be forced to drop by 60% (Negative Equity) . .more holders thats what i refer to property investors lately. CJ i am waiting for your laughter,i wish you wake up if you are asleep,\ ands join the blog. . .less by Market Watcher on August 14 2008, 21:41 Find this comment inappropriate? Report it

it's been a while i'm back! just got promoted. more money . I'm buying a HUGE CAR !! by super duper on August 14 2008, 21:46 Find this comment inappropriate? Report it

back for more so, as i was saying, I'TS ALL ABOUT GEARING !!!!!!!! how many more times do I have to tell you lot that? jokes about the car, although I did get promoted, so, guess what?........i'm gonna pump even more money into my bonds!!! sorry retailers, sorry car . .more sales guys, and sorry bank!! less interest for u! . .less by super duper on August 14 2008, 21:48 Find this comment inappropriate? Report it

Are we not forgetting... ...that little elephant in the room called Eskom price increases? They're still set to double over the next 5 years and it looks like Eskom will need some government sponsored capital injections because their own credit rating is circling the toilet . .more bowl. http://capetownbubble.blogspot.com . .less by CT Bubble on August 14 2008, 21:51 Find this comment inappropriate? Report it

Take a step back By keeping the interest rates on hold this gives temporary relief to those of you that are in debt.Like putting a bandage on a gaping wound if you get my drift.The haemoraging will continue.It just gives the Sheriff of the Court a bit of time to catch up . .more with his back log.This is Freemarketman is talking about picking up the distressed properties good luck to him there are thousands of properties for him to choose from. The bad news is of course ....YES.....you guessed it the rand is going to tank good and solid thus pushing up your inflation rate substantially.The Not Fit For Purpose One is on the cart on a ride to nowhere except doing what he does best is and that is mismanage the reserve bank a job he should over to who knows??? . .less by RUS on August 14 2008, 21:52 Find this comment inappropriate? Report it

Worse yet to come What about higher taxation to fund 2010 deficit, massive SAA losses, Eskom debacle, Coega white elephant and corruption? by Dave on August 14 2008, 22:34 Find this comment inappropriate? Report it

and I thought the Bulls would be out after this article? Freemarketman I am still laughing over your 2 posts.. :) funny stuff Actually I wish the rand would tank.. lets go to R11 to the USD, get exports going and stop this importing nonsense. We would be forced to go on local holidays and can stay in . .more one of CJ's many houses in CT that he will be buying soon. :) By the way "super duper" when it comes to "gearing "R is for reverse not Race... dont get caught out not understanding that. Gearing helps you go faster more efficiently. save energy use "those gears" . .less by Brennan on August 14 2008, 22:55 Find this comment inappropriate? Report it

Not really surprised Going up strengthens the rand and makes him unpopular - going down boosts inflation and encourages people to spend recklessly again - "playing it safe and not rocking the boat " was the easy option ... and the one that coincidentally creates minimal . .more stress-induced forehead sweat. . .less by CJ Says on August 15 2008, 00:14 Find this comment inappropriate? Report it

Question for CJ How much rent do you pay? What value has the property you are renting? What is the bond of that property if you were to buy it? by WTF on August 15 2008, 05:35 Find this comment inappropriate? Report it

Just convert your property into dollars or Euros to guage the price You wil find that the dollar price has radically reduced your house value in any hard currency. So the Rand price wavers only a little and then goes up. With the Rand at R11 to the dollar are you any richer? Our nation loves delusion. The simplest . .more remedy is to divide the cost of an entry level Toyota into your house price and, bingo, you too have a way to judge if you have gained. If you live in a million rand hok then you could exchange it for five or six Toyotas. You will find that ratio was the same forty years ago. Sooooooo, has the house owner gained anything? Yes, if he timed his purchase correctly. No if h did not. Notice how the institutions hate you to time anything. Timing fouls up their profit flow! Now go figure the effect of capital gains tax and other taxes and you have the reason you cannot save or retire as wealthy as you planned on your workers salary. The only way is the entrepreneurial way and avoid financial advisors and ALLLLLL governement schems to help you. Beg them not to help you. You will be better off. . .less by Free the Rest on August 15 2008, 07:43 Find this comment inappropriate? Report it

so Mr "Fat and Shiny" ducks his responsibilities again and leaves rates on hold tsk tsk Tito, this is a mistake and you are going to have to pay for it again later by Milkshakes Mshabalala on August 15 2008, 07:52 Find this comment inappropriate? Report it

For WTF Do keep up man - 11,000. 3m , 100% by CJ says on August 15 2008, 08:43 Find this comment inappropriate? Report it

hooray For once Tito has got it right. The markets will stabilise and property will come back strongly. If you've got a home just hang in there and you will reap the benefits. People who don't will being paying out their ears to get in to the market. by sunny on August 15 2008, 08:55 Find this comment inappropriate? Report it

amazing.... You're all right even the guys who are normally wrong. Wow must be friday? have a good one guys and thanx for the laughs. P.S. has anyone ever seen a Shapiro of Tito? is there one? by and Zen on August 15 2008, 09:13 Find this comment inappropriate? Report it

This is good news !!!!!!!!!!!!! I budgeted for 22% when I bought so there will be a surplus. It will be good if the rate comes down so more people can buy i.e. becomes more affordable. This must be good news for renters too. by Chris on August 15 2008, 11:10 Find this comment inappropriate? Report it

Milkshakes Mshabalala you are a prize mampara have you looked in the mirror lately IDIOT just because he didn't do what you wanted does not give you the right to make derogatory remarks about TM by andrew on August 15 2008, 11:57 Find this comment inappropriate? Report it

andrew... lighten up. Go and watch one of Ben Zander's "talks" and remember "rule 6". Watch this: http://www.ted.com/index.php/talks/benjamin_zander_on_music_and_passion.html by and Zen on August 15 2008, 14:46 Find this comment inappropriate? Report it

Thought you ought to know With the rand tanking the chances of a petrol price cut are startin to fade,even if one were to come next month don't hold your breath.The dirty dollar is going to spoil the party as will rising interest rates later this year in europe.INFLATION WILL . .more CATCH ITS BREATH AND THE NEXT ROUND IS GOING TO REALLY BITE . .less by RUS on August 15 2008, 16:25 Find this comment inappropriate? Report it

Huh RUS? The current dollar rally is a bet on the ECB cutting rates and the Fed hiking rates. That would be veeeeeeeeeeerrry interesting if Tricky Trichet does hike. The Eurozone and UK is in so much K**, I somehow doubt that they'll increase. But then again, you . .more never know with these central bank idiots. There is also no way that The Fed can increase rates. The US economy is currently sliding lower. If their is a rate hike it will crash. . .less by Freemarketman on August 15 2008, 17:54 Find this comment inappropriate? Report it

To C.J. (again) but what suburb? what suburb? previous place too please and "city bowl" is too vague! by andrewa on August 16 2008, 02:13 Find this comment inappropriate? Report it

How the Smart Money has lost $1 Trillion...so far Some suggested reading I posted on my blog: http://tinyurl.com/6l9xe4 by Freemarketman on August 16 2008, 08:38 Find this comment inappropriate? Report it

Interesting link Freemarketman At the end of the day, globally, people were encouraged to think in the same way that the bulls on this forum still think - i.e "buy property and you will soon get rich" - this was the mantra of the last 7 years ... and the result is that banks have now . .more lost $500 Billion. It's incredible and extremely scary. Everyone was saying this was the thing to do, but, as the article says "The smart money was unbelievably stupid money". "The general public knows nothing of this. The general public simply trusts the people who are in charge. The general public thinks that 'The best and the brightest' really are running the show.The best and the brightest ARE running the show. That is the problem." "A tiny handful of investors have figured out that something is radically wrong with the capital markets of the United States, and maybe the entire world. These little people, who read obscure e-mail letters, and who visit obscure blog sites, have a better sense of the nature of the looming crisis than the best and the brightest have. The best and the brightest keep telling us that the worst is behind us. People who read the newsletters snicker. Month after month, the people who read the newsletters turn out to be correct." . .less by CJ Says on August 16 2008, 10:31 Find this comment inappropriate? Report it

You've got to love those obscure blogs, sites and newsletters But you'll only discover and benefit from them if you're open minded, willing to swim against the stream and willing to handle the criticism of the flock and their herders. It's a lonely place to be but is becoming a bit more hospitable as more . .more and more people wake up from the bullshit-dream. Hell, that old Matrix cliche is so worn out, but it still remains the truest. . .less by Freemarketman on August 16 2008, 12:15 Find this comment inappropriate? Report it

There are lots of crazies in the streets Most ended up in the streets due to reading obscure extremist financial nonsense. Most of their narrow chosen reading just fulfills their fantasies and helps them rationalize their poor investment decisions over the years. They also develop paranoid . .more tendencies and believe its all one gigantic plot against them. If it was a gigantic plot, it would take a great deal of planning and coordination, attributes that they normally do not attribute to their foes. Yet their Narcissistic Personality Disorder does not allow objective assessments. Alas, the streets will always be full of crazies, unless of course the policing and health service improves. . .less by Reader on August 16 2008, 17:26 Find this comment inappropriate? Report it

Fetch the straitjacket... It's time for Reader's therapy :-D by Freemarketman on August 16 2008, 18:25 Find this comment inappropriate? Report it

Dear Andrew A GFY, Precious! Thanks by Milkshakes Mshabalala on August 17 2008, 09:05 Find this comment inappropriate? Report it

Where is Loos Anyone heard from Loos recently? The silence is remarkable. by Senzo on August 18 2008, 08:47 Find this comment inappropriate? Report it

ABSA ABSA had sent out early this year a forecast of 60% residential property price growth in the next three years. Chris, are we stil on course for that? Hehehehe. Bulldust economists. by Senzo on August 18 2008, 08:57 Find this comment inappropriate? Report it

LOL Senzo Did they really ? Tell me it's not true - maybe they are finding their debt problems a bit unpalatable - no problem, let's just hype the market up and get the suckers buying again ... worked before ... by CJ Says on August 18 2008, 10:42 Find this comment inappropriate? Report it

Next 3 years still to come... We shall see who laughs in 3-years time...... by Laughing all the way to the Bank on August 18 2008, 10:52 Find this comment inappropriate? Report it

Oh puhleez Laughing all the way to the Bank. You do not serioulsy believe residential property is going to rise by 60% in the next 3 years. by Senzo on August 18 2008, 13:11 Find this comment inappropriate? Report it

The market is coming back. I am an Estate Agent. I can see the hold on the interest rate hikes and the price drop in the petrol price has brought back some interest in the property market. The Time to buy is now. When interest rates are high and prices . .more low. This is after all a buyers market. http://jkproperties.ilocals.info/ Visit my blog for my views and interesting news . .less by Jaco Viljoen on August 27 2008, 17:46 Find this comment inappropriate? Report it

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