One of the best insights into the current national property market is provided by the FNB Residential Market Risk Overview. This 25-page analysis is packed with valuable data on every aspect of the main variables impacting the residential property market. The first important indicator to weaken in May was the trade-weighted exchange rate of the Rand. Having halted its downward spiral in January to start strengthening, May provided renewed pressure with speculation about the downgrading of our sovereign debt to "Junk Status". This has so far been narrowly avoided but the market has already punished our exchange rate in anticipation of this. There is a quick and direct link between a weaker Rand and our local inflation rate, which in turn means upward pressure on our local interest rates. The cost of money (interest rate) is one of the fundamental drivers of the mortgage debt dependent property market. Our CPI measure of inflation was 7% in February and 6,2% in April. There are two leading economic indicators for South Africa - one published by the SARB and one by the influential OECD (Organization for Economic Co-operation and Development). The first showed its 30th consecutive month of year-on-year decline at -4% while the latter also indicated a negative -0,7%. These measurements are predictive tools that economists use in an attempt to accurately forecast general economic growth. New Passenger Vehicle Sales were down by -12.89% in May 2016 according to Naamsa. A total of 27,143 passenger vehicles were sold in May this year compared to 31,161 in May 2015. The largest selling brand in SA is Volkswagen with 5,027 vehicles sold in May 2016 (excluding the 1,011 Audi's sold which are part of the VW Group). Toyota follows in second place with 4,410 vehicles sold in May 2016 (excluding the 98 Lexus vehicles sold which is part of the Toyota Group). For May 2016, 101 Porsche's were sold, 8 Maserati's and 3 Bentleys. You can pick up a 2015 Bentley Flying Spur V8 for R3,5m with about 6,521 km on the clock. In Zimbali during the month of June, you can pick up a beachfront home for 10 times that amount, good as new. Passenger Vehicle Sales have historically been a very good predictor of the trend in general economic growth and at the moment this indicator is raising a red flag.
The residential property demand strength as measured by the FNB Valuers Index has been declining and is currently reflecting the overall weakening trend in general economic activity. This is important to note if you are developer planning on bringing a new development to the market. Your value proposition has to be compelling and well presented in order to realize the expected sales. It is interesting to note that the average age of individual property buyers has been steadily increasing , while the percentage of home buyers below 40 has been steadily decreasing over the past three years. These trends are indicative of a tightening residential market. On the residential supply side we see that the FNB Valuers measure shows a housing supply at a low point when considered over the past 15 years, although the past 5 months have shown positive growth in the supply. When combining the FNB Valuers Residential Market Demand and Supply to get the Market Strength Index we note that we are dealing with a well-balanced market overall. This means that we have, in general, an equal weighting between buyers and sellers. The May 2016 FNB House Price Index rose by 7,4% year-on-year, which is slightly faster that the 7% recorded in April. In real terms, when adjusted by CPI inflation, house prices grew by 0,7% in April. The national average nominal house price growth does not tell a regional story and when we consider house price growth by province we see a surprisingly strong growth of 12% in the Western Cape. KZN house prices grew by 5,6%.
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Andreas Wassenaar
Principal - Seeff Dolphin Coast
Cell: 082 837 9094
andreasw@seeff.com