Property Talk

George Bernard Shaw wrote, "If all the economists were laid end to end, they'd never reach a conclusion." Jokes are often made about economists not being able to agree on anything, however with the South African Reserve Bank Monetary Policy Committee having met last week and announced that they would keep the key policy repo interest rate unchanged at 5,75%, this implies that the prime lending rate will remain at 9,25%, and economists are collectively more positive.

Good news for those with mortgage bonds and any other forms of debt. The decision did not come as a surprise given that our CPI inflation rate has come down quickly to 5,3% as measured in December 2014, which is comfortably within the Reserve Bank's 3%-6% target range. The sharp and dramatic drop in global oil prices has a direct impact on our local cost of fuel and inflation rate. Declining global food prices have also aided our local economy and further subdued inflation. Economists now agree that interest rates should remain unchanged for the duration of 2015.

FNB are predicting an average CPI inflation rate of only 3,5% for this year. The Reserve Bank still see our local interest rates as being abnormally low and will tend to leave them unchanged when faced with a positive inflation rate environment, rather that decreasing rates further.FNB see the low interest rate environment for 2015 as impacting on the housing market in three ways:

1. The housing market is expected to strengthen further with stronger average house price growth this year. We have already got off to an exceptionally strong start to the 2015 year, which may be an indicator of things to come. FNB are predicting house prices to grow on average by 8,2% this year, up from the 7,1% recorded in 2014.
   
2. Current interest rate levels should keep the market "sane" rather than promoting widespread speculative behavior. When interest rates exceed average house price growth speculative behavior is kept in check. It is when house prices start to grow at rates significantly higher than the prime interest rate, that speculators flood into the market to take advantage of short-term capital growth.
   
3. Housing affordability is predicted to start deteriorating as interest rates move sideways and property prices edge upwards. Average employee income growth is expected to be less than the average increase in house prices this year, meaning that one of our key measures of housing affordability, being the average house price/average income ratio will increase or become less affordable.
   

Scarcity of vacant land will become the new buzzword along the Dolphin Coast in 2015 as the surge in demand is currently running ahead of the supply. As estate agents we have seen our stocks of vacant land in all the estates such as Zimbali, Simbithi, Dunkirk, Brettenwood and Palm Lakes evaporate before our eyes. This scarcity is already driving prices to levels none of us thought possible a few years ago. My contention is that it all starts with vacant land pricing and from there filters through into every category of home - whether it is a two bedroom apartment in Hilltop Estate or a beachfront villa in Zimbali.

For consumers as a whole, FNB are predicting increased levels of confidence (a very good thing as sentiment drives spending and investment decisions) and a strengthening of real disposable income growth to 2,8% in 2015 from the 1,5% measured in 2014, as inflation rates fall. The Debt-to-Disposable Income Ratio - one of my favourite measures of consumer balance sheet strength to watch, is expected to improve further thereby continuing its multi-year downward trend. Bad debt levels and the number of insolvencies is also expected to improve during 2015. It's been a long time since we started a year with such a rosy picture.

For further information and an interactive analysis of this article follow my blog: andreaswassenaar.blogspot.com.

Andreas Wassenaar

Principal - Seeff Dolphin Coast

Cell: 082 837 9094

andreasw@seeff.com