Can Brazil and South Africa Lead Global House Prices? (The Bugle)

What do Brazil and South Africa have in common, apart from being host nations of the FIFA World Cup? According to leading global ratings agency, Fitch, South Africa and Brazil are expected to lead the residential house price rises for 2014. In their published report, the Global Housing and Mortgage Outlook, they examined 17 countries and at that stage predicted average nominal house price growth of around 6% for Brazil and South Africa. Globally Fitch regards Germany, the UK, Ireland and Portugal as having an improved outlook, while Spain, Greece, Italy and the Netherlands are still having a tough time. Interestingly according to Fitch the expected peak to trough decline in Dutch house prices is 25%, not too far below the dramatic 30% decline in Spain since the onset of the financial crisis. The house price index for Greece (as expected) has had the worst decline at 42%. Australian capital cities experienced strong growth over the past two years as demand exceeds supply. Fitch expected Australian house prices to grow by 4% on average in 2014. The US housing market has recovered strongly and Fitch now report that their Sustainable Home Price model indicates that national US home prices are approximately 15% overvalued in real terms. For Canada, Fitch are indicating a 20% overvaluation and for the UK a 15% overvaluation.

We do have marginal variations in our local house price growth measurement depending on how it is measured. As an example FNB’s house price index is currently showing year-on-year growth of 7,8% while ABSA’s most recently published house price index report indicates growth rates of 8,2% for small homes (80 – 140 sqm), 6,4% for medium sized homes (141 – 220 sqm) and 7,9% for large homes (221 – 400 sqm). The Fitch report did however warn that expected interest rate increases at home could temper further price increases and subdue demand for mortgages. This we already know. Fortunately so far this year the actual interest rate increase has been limited to a single 0,5% increase from 8,5% to 9%. ABSA have indicated that they expect a further 0,5% increase in interest rates in September of this year. Our Rand to US Dollar exchange rate peaked in February 2014 at an average rate of R11.12 to the Dollar. Since then it has improved and currently averaging R10.68. The idea of a consistently depreciating Rand has not as yet materialized which has provided some relief from further cost-push factors on our local inflation rate. The first quarter of 2014 saw our real gross domestic product (GDP) contract by 0,6%. A recession is defined by two subsequent quarters of negative GDP growth. Our economy was therefore on the brink of recession. The growth figures for the second quarter are not out as yet, but in a statement of the obvious our new Finance Minister, Nhlanhla Nene, was quoted on Bloomberg as saying we would probably miss our 2,7% growth target for 2014. Barclays Research is predicting a final GDP growth rate for 2014 of 1,4%.  With depressed national economic growth figures, what is an astute property investor to do? Buy high yielding rental properties at great prices.

Published in The Bugle 9th July 2014, Author: Andreas Wassenaar