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Bugle Sales Talk Editorial

Bugle Sales Talk Editorial

Author: Andreas Wassenaar
Date: 2016-01-15
Albert Einstein, one of the greatest and most influential Physicists of all time, is quoted as having said, "I have no special talent. I am only passionately curious."

Wow - there is hope for many of us if passionate curiosity is all it takes to achieve greatness. With the coming of the New Year, we are naturally refreshed and filled with new hope of a better future. Now all that is required is to ignite that passionate curiosity within each of us, and the sky is the limit.

If you want to get a sense of where the property market is in its typical business cycle, look at a pricing index and the growth rates thereof. According to the FNB House Price Index, the December 2015 uptick to 7% growth is a temporary increase from the 6,9% recorded in the two prior months and that the trend points to a weakening of house price growth as we head into 2016. The average growth in prices during 2014 was 7,1% and 2015 delivered an average growth rate of 6%. Thanks to significantly lower global oil prices, our CPI inflation rate declined from an average of 6,1% in 2014 to a 4,5% average growth rate in 2015. Real, inflation adjusted, house prices grew by 1,6% in 2015. What is interesting is that despite the recent growth in real house prices since 2011, our real house prices are still -16,7% below the peak reached in December 2007 at the end of the residential market boom period.

To get a better understanding of the current trend direction of house prices the month on month growth rates should be considered. From a 1% month-on-month high in September 2015, the rate has declined consistently to its current 0,6% measured in December. One of the key leading indicators of economic growth is the Manufacturing Purchasing Managers Index (PMI), which you will often see quoted on Bloomberg or other financial media channels. This index decreased to 43.30 in November 2015 from 48.10 in October, the lowest level since August 2009. This is also the first time since late 2009 that all of the PMI's major subcomponents are below the neutral 50-point mark. The SARB's Leading Business Cycle Indicator has also continued to decline, suggesting weaker economic times ahead.

So what does this general economic status report tell us as property professionals and what can we expect going into 2016? A weak Rand and higher food prices are expected to lift CPI inflation and therefore interest rates. Small increases similar to what we have experienced over the past two years can be expected this year. General GDP growth is expected to remain low which means general disposable income growth will remain low. This is likely to mean that more people will choose to rent rather than buy over the next year. With more prospective tenants chasing a limited stock of rental properties, we can expect rentals to be bid up. This could create a wonderful opportunity for property investors looking for high yielding property investments to secure those properties this year.

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