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