Whatshot
Property Talk
Property Talk
Date: 2017-07-28
There is Good News and there is Bad News
For those buyers shopping around in the local South African residential real estate market but making their decisions on a US Dollar or Euro to Rand exchange rate, it can be a time of uncertainty as to whether to import funds now at the prevailing exchange rate (the Rand strengthened to R12,94 to the US Dollar) or to delay in anticipation of a sudden and dramatic weakening of the Rand exchange rate.
While there is always a case to be made for further weakening of the currency in the face of unpredictable political shocks to our system, one of the most respected sources of economic data, Trading Economics, is predicting a Rand to US Dollar rate of approximately 13.72 in 12 months time.
This basically means that they are predicting a sideways movement of the Rand exchange rate over this period. If this does actually materialize then to try and time a property purchase around an exchange rate predicted to move sideways does not make any sense. You are better off simply finding the suitable property and buying it at the prevailing exchange rate.
Our current CPI Inflation rate is now at 5,1% firmly within the 3-6% target range set by the Reserve Bank. The PPI (Producer Price Index) inflation rate is at 4,8% and therefore tends to lead CPI further downwards.
This immediately impacts all interest rates throughout our economy with the Prime interest rate quoted by our major commercial banks immediately reducing from 10,5% to 10,25%. This will represent a marginal relief on mortgage bond repayments. A typical 20 year bond repayment will reduce by approximately R167.37 p.m. per R1m of debt, as a result of the decision to reduce the rate.
The Reserve Bank's Monetary Committee statement has adjusted our 2017 GDP growth forecast down from 1% to 0,5% and the forecasts for 2018 and 2019 down to 1,2% and 1,5% respectively.
Our official unemployment rate increased to 27.7% in the first quarter of this year. Imagine an economy where almost one third of all economically active people are unemployed. When things are tough the one positive side effect is that less credit is extended and therefore our debt to disposable income ratio improves.
If you look at the growth in the mortgage advances and the installment sales credit finance, which is very subdued, this reflects the trading conditions in the housing and vehicle markets - both of which are credit driven. Fortunately for South Africans the persistent global oil supply glut has undermined the efforts by OPEC to support oil prices through output restrictions and as a result we have seen crude oil prices trading at below US$50/barrel since June. This helped us receive 69 cents per litre reduction in the petrol price in July. Happy Days!