2012: The economy and property outlook

26 Jan 2012

Property experts and economists have been saying house prices will remain in single digits with all eyes on South Africa’s economic growth.

Economists and analysts are of the consensus that South Africa will grow its economy by between 2.5 and 3 percent in 2012.

While consumers will continue to buy and sell houses this year, the economy would need to pick up before we can expect any real strength in the residential property market.

Click here to read more about what our panel of experts had to say about the property market in 2012.

This year is also reportedly going to be a good one for cash buyers as they will have more bargaining power than ever before.

FNB revealed in a report that the residential property market can expect a slowdown in 2012 with demand expected to lead towards the affordable segments.

The lower end of the property market is set to continue to perform better than the higher priced segments.

Estate agents have also warned property sellers to price correctly because this year will see a lot of distressed stock coming into the market and competing with the sellers.

Mortgage originator ooba has said it anticipates that residential property prices will continue to drift sideways throughout 2012 and does not expect the average annual property price growth to exceed inflation by much this year.

Lew Geffen, chairman of Sotheby’s International Realty in South Africa, said the decision by Absa to accept applications for 100 percent loans from mortgage originators is just the first salvo in the renewed battle for market share by banks.

Property24 readers have been very vocal about banks giving 100 percent home loans arguing that banks are stingy institutions.

Jaco Rademeyer of Jaco Rademeyer Estates said the banks are still a bit tight, while Morne Prinsloo from Mortgage Plus Bond Originators told us that the property finance market is booming.

Eric Snyman Doms believes the article is a year ahead of its time. The bank will not start lending unless interest rates increase, which will not happen until the end of 2012, he comments.

The Reserve Bank of South Africa decided to keep the repo rate unchanged at 5.5 percent per annum last week.

The Bank expects the South African economy to average 2.8 percent for 2012 and 3.8 percent for 2013.

With interest rates expected to remain low this year and property prices depressed, the current market represents a favourable environment for buyers, say estate agents.

Economists and analysts are of the consensus that South Africa will grow its economy by between 2.5 and 3 percent in 2012.

The crystal ball suggests that this will not be a good year, but neither will it be a bad year considering what is happening elsewhere in the world.

Economists and panelists aired their views at the Economic Outlook Conference 2012 held at the Gordon Institute of Business and Science (GIBS) in Illovo Johannesburg yesterday.

If you are an investor of any kind, your best bet is to put your money in the financial markets and specifically buy or invest in property.

This is according to Dr Azar Jammine, director and chief economist at Econometrix.

“Savvy investors are now buying property and gold,” said Dr Azar Jammine, director and chief economist at Econometrix.

Speaking to Property24, Jammine said with uncertainty currently experienced in the global markets, a lot of money is going into the financial markets as offerings here are seen as a good hedge against inflation.

“Savvy investors are now buying property and gold,” he said.

Jammine said 2012 will be a tough year as investors have less confidence in the economy. As for fixed investments, he said this year will be even slower than 2011 and he lamented the fact that government fixed investments recorded a negative growth last year.

He said the economy is not something to be overly excited about, he put it this way: "We are muddling along and the economic outlook is not as good as it could be".

In a number of discussions, it would seem all roads lead to Africa. He said Africa is a phenomenal growth story at the moment.

Prof Adrian Saville, chief investment officer at Cannon Asset Managers and GIBS Faculty, remained positive about South Africa saying he expects low economic growth with Europe being a challenge to our shores.

Without wanting to predict what the economic outlook for 2012 will be, Saville said South Africa does not need a new economic growth plan.

The country needs as a matter of urgency to address three things, the education and healthcare system and ensure stability and clarity of policy execution.

With all eyes on the Eurozone, he hopes that whatever comes up in 2012, we end the year with Europe having squared up its debt problems.

Chris Hart, chief strategist at Investment Solutions said from an investment view, growth is going to be a premium because everyone is looking for it.

He noted that the retail sector is not making a lot of money, but we are seeing a lot of consumer spending and he does not believe that the global financial crisis ended in 2008.

Hart said economic growth will be low this year at 3 percent adding that the annual budget to be presented in February by Finance Minister Pravin Gordhan will be a critical event since 1994 because of all the credit ratings that have emerged.

He said despite all the gloom and glum about the economic outlook, South Africa has three most important characteristics of emerging markets which attract investors.

The three competitive advantages we have compared to other markets are yields, growth and sovereign solvency.

Meanwhile Annabel Bishop, group economist at Investec South Africa, does not expect strong economic growth this year and pointed out that Credit Rating agencies are concerned about economic growth in South Africa.

Meanwhile Annabel Bishop, group economist at Investec South Africa, does not expect strong economic growth this year and points out that Credit Rating agencies are concerned about economic growth in South Africa.

She noted that a good thing about South Africa when the global economic recession hit in 2008, was that the country’s banking industry was not affected thanks to its stringent policies.

She concurred with Jammine that fixed investment is worrying as it is way too low and government needs to do something to enhance investments as this would stimulate growth.

Unemployment and skills shortages were some of the issues raised as being a challenge in South Africa.

However, Dawie Roodt, chief economist at the Efficient Group does not believe South Africa has unemployment or skills shortage problems.

Roodt vehemently said South Africa’s problem is economic growth, once growth is at acceptable levels all other things will be easier to fix or solve.

Another interest point that emerged at the conference is that there seems to be a love/hate relationship between government and businesses.

South African economic policies are not supportive of small businesses and Hart believes this is the way that will ensure creation of employment. A case in point is the introduction of the Consumer Protection Act, which he said has made it difficult for small businesses to operate.

Hart said the only way to achieve sustainable economic growth levels in South Africa is to increase support for small businesses and enhance household savings.

Whether or not the economy will grow at 3 percent in 2012, we have been told that this is definitely a buyers’ market and bargains are available for a limited period only.

The slow economic growth presents a serious challenge though to the housing market, fewer property sales, flat home prices and homes taking longer to sell equates to estate agencies spending more money on advertising with less returns.

According to Herschel Jawitz, chief executive officer of Jawitz Properties, property prices will impact on estate agents commissions as the only way to increase earnings is if property prices increase or more properties are sold.

“Unlike other industries where professional fees are charged, our commission doesn’t go up with inflation each year,” he said.

He reckoned if property prices only go up by two or three percent in 2012, in real terms, commission earnings will decline and costs are increasing by at least 10 percent.

Jawitz explained that normally, if one sacrifices margins they can try to make up the numbers with higher volumes, but the numbers of sales for the most part are going to be flat year-on-year and in some areas may even decline.

He said because of these factors 2012 will be another very competitive year for the industry as growth will have to include taking market share from competitors. 

The slow economic growth presents a serious challenge though to the housing market, fewer property sales, flat home prices and homes taking longer to sell equates to estate agencies spending more money on advertising with less returns.

“The bigger brands should be better off by the end of the year.”

Jawitz said the number of estate agents has declined mostly from the smaller agencies that have not been able to sustain themselves in a challenging market.

The number of estate agents has decreased by 60 percent since the height of the boom in 2006/7 to about 25 000. 

Most big national franchised brands or large brands in the metro areas have fared significantly better in this period and while absolute market sales may not be increasing, relative market share will have grown, he said.

He added that the growing franchise network trend is set to continue this year pointing out that Jawitz Properties grew its network by 35 percent in 2011 expanding across the Eastern Cape and KwaZulu-Natal. – Denise Mhlanga

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