Should we expect an interest rate cut in December?

As things stand today, New Zealand starting easing interest rates in July this year. Australia did the same thing about a month later, despite clear policy statements against rate cuts just a short time before. The America Fed, desperate to revive a slowing economy, came down as low as 1%. In England, the BoE aggressively cut rates by a surprising 1,5% and should also play in the 1% arena by 2009, according to Cees Bruggemans, chief economist of First National Bank. Add to the list also the European Central Bank, the Bank of India and even Turkey.

Yes, our policymakers are worried that cutting interest rates might weaken the ailing Rand even further. However, Tito Mboweni recently said that South Africa is moving into a lower inflationary environment. Add to that the rapidly slowing economy and the effect thereof on the labour market and it is clear that we need something now to get some movement back into the economy. This may even outweigh any fears of a weakening Rand. In fact, Mister Mboweni also recently stated that the Rand took a beating merely for being the currency of an emerging market.

Our view is that the South African Reserve Bank will probably cut the repo rate by no less than 50 basis points at the next MPC meeting in December. Who knows, we may even see a 100 (or 1%) cut. This will probably also be the first of a series of rate cuts to follow.

Of course, if you’re a serious property investor, now is the time to talk to your property consultant to get those bargains. Activity in the property market is picking up and prices usually follow suit – upwards.

Count your blessings, South Africa. It could have been worse!

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As predicted in our last blog post the South African Reserve Bank decided on Thursday to raise interest rates by just 50 basis points against consensus and market expectations of a 100 basis point increase. The majority of experts were expecting a rate hike of 1% (100 basis points), but we felt that that would have been overkill.

The point is though, in the current cycle, which began in June 2006, rates have now been raised by 500 basis points to 12%, with the prime rate at 15.5%. This was the tenth consecutive interest rate increase since June 2006, leaving many South Africans in the lower and middle income groups struggling to put food on the table and a roof over their heads.

It doesn’t seem to be a great time for South African homeowners, does it? Point is, South African homeowners can still feel reasonably lucky. We are not the only country experiencing a rapid slowdown in house price growth. Knights Frank, a British based property group, released a report last week on global housing markets. This report confirms that a number of other countries including the likes of the UK, Canada, New Zealand and Norway have also slipped from double digit to single digit growth over the past year. SA is still currently ranked as the tenth best performing housing market among 34 countries in 2008 with growth of 8,8%. That’s down from 6th position a year ago when SA house prices were still rising at 13,6%. Overall global house price inflation came to an average 6,1% in first quarter 2008, down from 9,8% a year earlier.

Times are tough… in most property markets. This comes on the back of the sub-prime fall-out and the global credit crunch. Our advice is to keep your credit spending to a minimum and to pull those belts as tights as possible. Free markets do go through cycles and we will get through this one as well.

As for those property investors, we expect a further decrease in the number of sales taking place, which will ultimately lead to a fall in house prices. South African homeowners’ debt burden has been made even heavier. Of course, these rate hikes are setting the scene for a booming rental market with excellent prospects for certain investors.

Make sure you work with a trusted property advisor to help you through these troubled times. Our expert consultants are waiting for your call.
*Copyright. Sun Microsystems 2003

Increasing interest rates

If you read the paper often, you’ll know that Tito Mboweni recently threatened drastic measures to increase the interest rates by 200 basis points at the next MPC meeting (which is the South African Reserve Bank’s central Monetary Policy Committee). Yes, that’s right, rates will increase by a full two percent in one go, if Mr. Mboweni sticks to his word.

Ouch!

Consumer price inflation is currently at above 10% and, of course, well above the 6% upper limit of the inflation target range. It is forecast to remain under upward pressure over the short term on the back of international oil price, food price and exchange rate movements. In other words, it doesn’t look like inflation is coming down any time soon. According to the latest projections by the SA Reserve Bank, CPIX inflation is expected to gradually decline from around the second quarter of 2008 to only reach the 6% level by late 2009.

That’s a lot of bad news to stomach. Our view is that interest rates will indeed be hiked further at the next week’s MPC meeting, but the rate hike will not be as severe as Mr. Mboweni threatened to do. Most local experts are predicting a 100 basis point “big bang” increase. Our view is that Tito and Co will hike rates only by another 50 basis points (or half a percent), which makes further monetary tightening in the months ahead a very real possibility.

News24 reports that “Higher living costs and tighter lending conditions are starting to curb household borrowing and spending. Credit growth in April slowed below 20% for the first time since December 2005, while vehicle sales dropped 23.4% y/y in May, the largest decline in more than nine years.” In other words, Joe Average is already feeling the pinch BIG TIME. Raising interest rates by 2% instead of 0.5% won’t have such a marked efficacy on normal consumers to justify such extreme measures. Tito knows this.

Mark our words. You heard it first from Terblanche Property Solutions. Of course, if you’re a property investor, you may be smiling indeed. The smart investor buys when the market is down and sells when the market is up. The property market is definitely moving into negative territory.

Call us to help you find those bargains.

Some good ole fashioned neighbourly interest

I spoke to an acquaintance of mine a few days ago. Let’s call him John. John had been burgled a day before our conversation. He was understandably upset, considering that he stays in a so-called safe area. To make matters worse, the thieves had the audacity to drive their van (probably also stolen) into John’s yard right in the middle of the day. Of course, John was almost emptied out and will definitely be paying a higher insurance premium from now on.

What I found astonishing was the fact that John’s next-door neighbours of three years were at home when this happened. Yes, that’s right, they were right next door while these criminals were taking their time to carry out John’s personal belongings and furniture. When I expressed amazement at this, John sheepishly admitted that he also didn’t really know them (his neighbours) before the day of the burglary.

Is this what society and modern living did to us? Are we so engrossed in our own lives that we don’t care for those around us anymore? Are we so scared to get involved that we are literally blind to criminal acts when they occur ? Nobody is saying John’s neighbours had to do something heroic like throwing themselves before the van the thieves were driving as they were speeding away. However, if John got to know his neighbours over the course of the three years they were living right next door, they might have known that John doesn’t drive a blue panelvan. They might have suspected something and alerted the police and John would still be feeling safe in his own home.

I want to challenge you to get back some of those good old-fashioned values that our grandparents believed in. Introduce yourself to your neighbour at the very least. At Terblanche Thomas Property Solutions we will take up this challenge and get to know our neighbours, our clients and even our competition. We are all for being part of a revival of good old-fashioned values here in our own town, Mossel Bay and the rest of the Garden Route. Next stop – the world!

Your own little piece of paradise

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So you just had to say goodbye to the dream of owning your own little piece of paradise down at the coast with Tito Mboweni’s latest interest rate hike? Unfortunately the interest rate on your bond repayment is just one cost you need to consider. There is also maintenance, security, levies (if your property is in a complex), DSTV, cleaning, gardening etc. Depending on your specific property, the list can be seemingly endless.

There goes the dream… or does it really?

There is another way to get your share of paradise. Fractional ownership makes it possible to have a share in a company that owns a luxury property that is well maintained and managed. It works like this: you buy a share in a company that owns an expensive, luxury property at the coast. Normally this is the kind of property that we mere mortals wouldn’t be able to afford on our own. They are always fitted with luxury furnishings and fittings such as plasma screens, fridges, freezers, smoothie makers, braai areas, linen and so forth. However, because you are one of 13 shareholders, you’ll basically only pay 1/13th of the price of that property.

Usage of the property is normally allocated to the shareholders by means of an ownership usage roster and running costs are divided amongst the shareholders. In other words, your share entitles you to a number of weeks per year during which you have the full usage of that property. The property is also fully serviced each day, which means that even Mom would be able to relax completely. When your holiday is over you simply hand the keys back to the managing agent and they make sure that property is ready for the next shareholder. No longer do you have to mow the lawn and do the maintenance.

Best of all is that you get to keep a fraction of the property where you can go on holiday for a few weeks a year and still gain on your investment as the property grows in market value. In fractional ownership it is the long-term post-sales management which is the key to success so it is imperative that you deal with reputable property managers such as Terblanche Thomas Property Solutions.

*Picture courtesy of Forestview

What can you expect from the property market in 2008?

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Since last year, the phenomenal growth experienced in the South African residential property market started to slow down. We have experienced double-digit growth for a number of years now and many thought the party would never stop. However, all indications are that our property market is poised for another year of slowing price growth.

Does this mean that the outlook this year for the average property investor is decidedly one of doom and gloom? Bear in mind that Tito and company increased rates eight times over the last 18 months. These increases have resulted in mortgage repayments increasing by about 25% since 2000. Couple this with price growth that will probably be in single digits for the first time in seven years and it looks like this year might not be so happy after all if you’re a property owner.

The thing with the slowdown in the price growth is that we live in a country with an inflation rate expected to peak at about 8% this year. If the value of your house increases by only 8% or 9%, it is clear to see how that kind of growth will not give you anything in the line of real growth.

Luckily the news is not all bad.

If you are a potential buyer, you will be happy to know that the slowdown in the growth of house prices is giving your salary an opportunity to catch up for the first time in seven years. Despite some fears, South Africa has also largely been spared the fallout from the sub-prime crisis in the USA and United Kingdom. This means that our banks will still be happy to provide loans to potential home buyers.

Potential buyers must bear in mind that house prices – while not growing by much this year – are not likely to fall either. Furthermore, the supply of housing onto the market is also decreasing as new building plans being passed is continuing to slow down. This should help to support both price growth and rental growth.

If you are a property owner, you will be happy to know that rentals and yields are on the increase for investment property owners. The rise in interest rates and the increase in repayments are making potential buyers jittery and they are showing signs of rather waiting it out in the rental market. Compared to previous years the property market has slowed in terms of price growth and demand.

Our view is, despite the current high interest rates, the slowing price growth is an opportunity for buyers to get into the market. At some point – probably towards the end of this year – interest rates will start to fall and prices will start to climb at an increasing rate again. Will you be ready by then or will you be forced to watch house prices sky-rocket making them ever more unaffordable?

Remember, generally it doesn’t get easier to get into the property market. It only gets harder… and more unaffordable. Talk to one of the experts at Terblanche Thomas Property Solutions for advice tailored to your individual needs. Mossel Bay and the Garden Route offer some real investment gems – if you know where to look.

*Copyright: Stefano Roddaro, from stock.xchng

Time for a sale

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Hi there,

Every now and then the property market – like any other market or store – has a sale. Some call it a “correction”, others talk about “low growth levels” and some others warn of an impending “property bubble”.

According to Absa Bank’s latest House Price Index, house prices in South Africa were up by 14,5% in nominal terms compared to 15,2% in 2006 and 22,6% in 2005. However, compared to recent years, house price growth was only 3,8%, year-on-year in November (5,3% in October). Property analyst at Absa, Jacques du Toit, said this is “the lowest real growth since the 4,2% recorded in December 2002″. The average house price is now R964 000, according to Absa’s measure.

What does this mean for you? Bear in mind that many economists are expecting the growth in house prices to taper off even further this year due to scary things like the National Credit Act, rising interest rates etc.

Well, for one this means you’ll probably get properties now for bargains you wouldn’t have seen in the last 4 years. Properties are investments with a lifespan of a number of years. If you make the right investment now, it will pay off when you sell. Of course, rental income generally is also growing again as more and more people in South Africa are forced to rent because they cannot afford to buy. This is also true in Mossel Bay and many of the other towns in the Garden Route.

Profit is made when you buy, not when you sell. Prices are growing slower now, which means that it’s becoming a buyer’s market again. The smart investor will talk to his property advisor now to find those gems. Talk to a knowledgeable agent at Terblanche Thomas Total Property Solutions for advice on finding those smart property investments now.

Don’t follow the herd.

*Copyright 2001-2008 Architel