Rand Decline Encourages Foreign Buying (The Bugle)

Politics dominated the press over the past week with election results posted, the winners celebrating, the losers weeping and the rest of us feeling satisfied that our maturing democracy is on track and our constitution holding firm. It is business as usual in the property market. Our Rand exchange rate has continued to strengthen from the February 2014 spike. Currently averaging 10.49 Rands to the Dollar for May 2014, this is an improvement from the February average of R11.12. The number of foreign buyers spiked in the first quarter as the smart money realised that this would be a temporary opportunity to take advantage of and invest in South African real estate at a very favourable exchange rate. Fortune favours the brave and those people who did buy and bring in the forex at the right time have already improved their position by almost 6% in three months – probably even before taking transfer. This year to date has provided exceptional growth in market activity in the areas that we service and the first four months of 2014 have already delivered the similar number of transactions we concluded for the first six months of last year. If you are in sales, growth is good and we tend to be driven by targets and exceeding the success of the prior periods. 

One very instructive measure of overall property market activity is the South African Reserve Bank’s measure of transfer duty receipts. The typical transfer takes three months from date of purchase to the final date of registration on which the transfer duty on the transaction is paid across to SARS by the transferring attorney. Even though we have large variations from month to month due to seasonal influences, the smoothed data provide an excellent trend indication of the property market cycle. We have seen that for the three months to March 2014 year-on-year growth in transfer duty receipts was as high as 30,4%, slightly down from the exceptional 35,2% for the three months to February 2014. What does transfer duty receipts data tell us? This indicates both a significantly improved transaction volume growth as well as average price growth. The trend was a sharp acceleration in 2012 and 2013 and now a flattening out in growth at the top end of the cycle. We can expect to see some sideways movement in transfer duty receipts over the next six months and possibly a decline later in the year. The one statistic that is often plotted together with transfer duty receipts is the Reserve Bank’s Leading Business Indicator as the two tend to move in tandem, with the leading indicator being a good predictor of the future property market cycle. Higher expected interest rates, slowing economic growth in terms of lower GDP growth rates and a slowing trend in household disposable income are the key variables providing for a leading indicator that is showing a -2,8% year-on-year decline. This would indicate a near term slowing in the number of property transactions. Sellers and their appointed estate agents can be expected to have to work harder for those sales in the second half of 2014 and buyers will have the comfort that the negotiating power in a property transaction remains with them for now.

Published in The Bugle, 12 May 2014, Author: Andreas Wassenaar