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Bugle Sales Talk Editorial

Bugle Sales Talk Editorial

Author: Andreas Wassenaar
Date: 2015-07-31
The Reserve Bank Monetary Policy Committee met last week and decided to increase the policy repo rate by 25 basis points (0,25%) to 6%. This is significant in the property industry as it provides a clear indication of the interest rate cycle and that the policy makers are pre-empting higher inflation over the next six to nine months. Our CPI inflation rate is currently 4,7% as measured in June.

The PPI rate (Producer Price Inflation) is 3,6% providing an indication of lower price increases for manufactured goods leaving the factories, but this is up from a low of 2,6% in February. The Reserve Bank's forecast of headline CPI inflation is currently at 5% for the 2015 year and then increasing to 6,9% and 6,1% for the first two quarters of 2016, with a decrease below 6%, to within their target range of 3% - 6%, from the third quarter of 2016. The Reserve Bank's report specifically mentioned wage growth rates and currency depreciation as drivers of our local inflation rate.

They have factored in a 13% increase in electricity price increases from July 2016 to July 2017 (a good reason to start converting those lights at home to LEDs and install solar panels sooner rather than later). As a tenant looking to secure a rental, the increases in the cost of electricity can be expected to become a significant factor and homes that offer low consumption and cost infrastructure are going to be more desirable going forward and command a premium in rental rates. The international economic scene weighs heavily on a small open economy such as South Africa and the recovery in the US is reported to be on track although at a lower level of 2% growth expected now instead of the 3% forecast at the beginning of the year.

The Euro area is marginal with the immediate crisis in Greece avoided for now but the outlook over the medium term remains a concern to our Reserve Bank. The Chinese economy reported growth of 7% in the second quarter, but the slowdown there has impacted in commodity prices with gold hitting a 5-year low. Anglo-American's recently published results showed a $2,5bn net loss (that is approx. R58bn) and it has been reported that it plans to close several mines and shed up to 50,000 jobs globally - a third of its workforce. Their platinum assets are up for sale and their CEO Mark Cotifani was reported on Moneyweb as saying they have some expressions of interest. In the same interview he mentioned the large impact the Platinum miners strike in 2014 had had on their financial results. These are tough times for the mining industry and those people whose livelihoods are linked to commodity prices. Low oil prices have been a disaster for Russia (but good for us). Brazil, as a major emerging market and whose economy is also linked to commodity prices has a weak outlook.

The Reserve Bank's report provided some insight into the weakness of the Rand exchange rate, which is rated as a higher risk currency and lumped together with other emerging markets. Even the crisis in Greece and the volatility in the Chinese equity markets had an impact on our Rand, which has weakened by a further 5% over the two months since the previous Reserve Bank Monetary Policy meeting. It appears that the Reserve Bank is expecting a further deprecation of the Rand and with that upward pressure on our local inflation rate. Against this backdrop of national and international economic data, we find demand for our properties along the North Coast at an all time high. As estate agents we are enjoying this boom and remain cautiously optimistic about the future.

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