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Property Talk

Property Talk

Date: 2014-09-26
On the 18th September the SA Reserve Bank (SARB) published its Monetary Policy Committee statement following its scheduled meeting to deliberate and decide on the level of the repurchase rate, or the rate it lends money to the banking sector. It is through this mechanism that it controls all interest rates within our economy. An increase in this administered rate is immediately followed by similar increases in the prime rate charged by commercial and private banks in South Africa.

 The SARB decided to keep its repo rate fixed at 5,75%. Prime mortgage rates therefore remain unchanged at 9,25% for now. The CPI inflation rate as measured in August 2014, is currently 6,4%, just above the SARB top target range of 6%. An interest rate I like to watch is the Producer Price Index (PPI), which measures the inflation rate of goods leaving the factories or producers. This rate has to trend downwards to ensure a downward trending CPI rate. Without a downward trending CPI rate, our interest rates will remain under upward pressure.

From Gill Marcus' report it is useful to highlight a selection of key insights to get an understanding of the state of play in our economy at the moment. The SARB is now forecasting that CPI inflation for 2014 will be 6,2% and 5,7% for 2015. The forecast for 2016 has increased marginally to 5,8% mainly as a result of Eskom's agreed electricity price increases of 11,6% from July 2015 and July 2016.

The Rand exchange rate remains vulnerable. Currently hovering around 11.07 Rand to the US Dollar, 18.17 Rand to the British Pound and 14.25 Rand to the Euro, the overall weakness of the Rand means cost-push pressure on our local inflation rate. Any small open economy such as South Africa will immediately feel the ripple effects of a depreciating currency throughout its economy.

 International oil prices have declined recently to approximately US$98 per barrel from a trade range of between US$105-US$114 for the year to end July. This is somewhat surprising considering the regional tension in the Middle East usually results in oil price increases. The good news was that the domestic petrol price was reduced by 67 cents per litre in September, even though the Rand weakness partially offset the benefits that could have resulted from a lower oil price.

According to the SARB report, over the past two months non-residents have been net sellers of bonds to the value of R29,3bn and net purchasers of equities to the value of R16,2bn. For the year to date net outflows of bonds and equities has been R6,3bn. As long as there are net outflows through the capital account our exchange rate will remain under pressure.

 The platinum mines strike impacted severely on our export earnings and the strike in the steel and engineering sector in July had severe spillover effects on the manufacturing sector in general. If you were building a home and needed steel rods delivered for your concrete you would know about this. Our domestic economic growth rates were -0,6 per cent and 0,6 per cent for the first and second quarters of the year. A recession is defined as two consecutive quarters of negative economic growth. We avoided a technical recession by the skin of our teeth but the underlying economic growth rate remains sluggish.

Interestingly we have concluded some of the best property transactions in our history despite being faced with poor economic fundamentals. We have found that the business is there for those who take the initiative.

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


Andreas Wassenaar

Seeff KZN Chairman

Principal - Seeff Dolphin Coast

andreasw@seeff.com