Are you feeling confident? Depends
whose asking. Images of a younger Clint Eastwood squinting at you or a RMB Bureau
of Economic Research (BER) economist posing the question may influence the
answer. The FNB BER Consumer Confidence Index has remained similar over the
past three quarters but the RMB BER Business Confidence Index jumped from 38 to
52 between the fourth quarter of 2011 and the first quarter of 2012. Before we
become too euphoric, the press release of 7 June 2012 by the RMB BER indicated
that in the second quarter they had recorded a drop in this measure to 41. The
five sectors measured that make up this index are Retailers, Manufactures, New
Vehicle Dealers, Building Contractors and Wholesalers. Retailer’s confidence
measure fell from 61 to 39, the lowest level in two years, which can be
attributed to lower sales volumes across all types of retailers. Manufacturing
confidence decreased from 47 to 29 indicating that they doubt the continuation
of the previous quarters strong growth in turnover and production. New vehicle dealer’s
confidence declined from 73 to 65 due to lower sales but they still remain the
most confident of the group. Building contractors confidence deteriorated from
31 to 24 index points, much of which is attributed to commercial building
activity declining, rather than residential building. Lastly, the Wholesaler’s
confidence actually increased from 48 to 50 on the back of improved sales. Had
Estate Agent’s been included in this index, we may have skewed the results
upwards a bit, as our sales for the first and second quarters of 2012 have been
significantly higher over the 2011 figures. Seeff Dolphin Coast was awarded, in
May 2012, with the coveted “Seeff Licensee
of the Year 2011” title, measured on a national basis and across their market
size category. This is indicative of the growth the Dolphin Coast continues to
enjoy with families migrating into the area en masse.
As realtors and professionals who are
intimately involved in the property market on a daily basis, it is in our
interest to be aware of the economic trends that have a direct impact on buyers
and sellers. The commercial banks in South Africa each have their own measure
of house price movements, and although the measures to vary the trends are most
important. As South Africa’s largest mortgage bond provider, ABSA have reported
in their June 2012 House Price index review that the pace at which house prices
have been deteriorating is slowing. They expect subdued price performance for
the rest of 2012. ABSA measure house price changes across small (80-140 sqm),
medium (141-220 sqm) and large (221 – 400 sqm) homes. The real (inflation
adjusted) 2012 year to date and year on year percentage changes across these
three broad categories respectively has been published at -17.4%, -5.6% and
-5.0%. This provides sellers with a clear motivation that an attempt to
increase pricing in the current market will not result in a sale. The June 2012
release of the FNB House Price Index indicated that nominal house prices grew
by 9% in May 2012, while inflation adjusted house prices grew by 2.3%. The
month-on-month house price growth figures do however indicate a decreasing
trend from 1.4% in January 2012 to 0.96% in May 2012. As long as monthly
changes are decreasing our year on year figures will level off or begin to
decrease. Although real house prices as measured by FNB were -12.8% lower in
April 2012 compared to their February 2008 peak, real prices were 69.9% higher than
July 2000 when this index was started. This helps us to understand that over a
longer period of time, house price growth has been exceptional and well beyond
the average inflation rate. As long as the underlying fundamentals of more and
more people wanting a limited stock of available properties continues, house
prices will always have to be bid up to match the prevailing demand. Although
the ABSA and FNB house price figures appear to be very different, to trend and
message is the same: House prices will be flat for 2012.
The overall South African economy,
according to Stats SA’s Gross Domestic Product numbers grew by 2.7% in the
first quarter of 2012, which is down from the 3.2% in the previous quarter.
This indicates an economic soft patch setting in, but the good news is that
inflation threats have moderated. Our consumer price inflation is still at 6.1%
but the producer price inflation (the cost of goods leaving the factory doors)
has decreased significantly from 10.7% in September 2011 to 6.6% by April 2012.
For those buying imported Samsung LED’s or Canon cameras you will be pleased to
know that the producer price index for imported goods has slowed from 16.4% in
December 2011 to 8.5% in April 2012.
For those who have recently struggled
to secure mortgage finance, the only consolation I can offer is that you are
not alone. The total household mortgage advances, according to the South
African Reserve Bank, grew as a year-on-year measure by a mere 2.3% in April
2012, which was only marginally up from the 2.1% for March 2012. There has been
growth of 7.2% in total household credit, and even though mortgages make up
64.5% of this, it indicates that South African households are using this credit
to fund expenditure on items other than homes. ABSA’s forecast is that mortgage
growth will remain in single digits territory for the remainder of 2012. We can
think of mortgage finance as the fuel that fires a property market. As
mortgages extended by banks grows the demand for homes will grow and house
prices will then recover. For now cash remains king and provides buyers with
the best opportunity to secure properties at the keenest possible prices.
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