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Property Talk

Property Talk

Author: Andreas Wassenaar
Date: 2018-07-06

In Negative Territory

Life is full of curved balls. How does Japan lose to Belgium in the Fifa World Cup in the last minute of their valiantly fought 90-minute campaign Having been up 2-0 at one stage a surge of confidence seemed to prevail within their camp.

Shell-shocked was a good way to describe the Japanese players, couching staff and fans after ending in a 2-3 defeat. You had to feel sorry for them. When you study economics they teach you about external shocks to the system, which can cause major disruption.

A good example was the international financial crisis of 2007/8 and the major recession that followed in 2009. Our GDP growth rate (or contraction) of -2,2% in Q1 of 2018 was a rude awakening and the worst since 2009. The 2nd quarter has felt particularly distressed as well at the coal face of daily trade.

When the GDP figures are released for Q2 it will be interesting to see if we are in negative territory as two consecutive quarters of negative GDP growth rate is how a recession is defined. If we are not in a recession then it certainly feels like we are.

Ballito is benefitting regionally from a semi-gration of hundreds of families moving into the area from mostly the greater Gauteng area. If you are in real estate - sales or development - then this has been a blessing and the driver for our businesses. If you are a prospective buyer you are loving life as the market is stacked in your favour.

In terms of house price growth, FNB report that in June 2018 House Prices grew by 4.1% year-on-year, up from the previous month's 3.9% and from a February low of 2.9%. FNB however report that, in real terms, when adjusting for CPI inflation, house prices remain in decline.

As of May 2018, the most recent figures, real house prices declined year-on-year by -0.5%. The 1st quarter 2018 domestic sentiment "spike" who could all feel at the time was however short lived and the 2nd quarter saw sentiment regress. The perception of a weakening housing market is supported by the estimated average time a home is on the market prior to a sale being concluded. The first quarter recorded an average of 14 weeks and 1 day, which then increased to 16 weeks and 4 days in the 2nd quarter.

At the moment the housing market is getting little support from GDP growth and at the half way mark for 2018 the average house price growth sits at 3.4%, slower than the 4.2% average growth for 2017. Current signals are therefore pointing towards slower average house price growth in 2018 and possibly the 4th consecutive year of house price growth decline. Even though earlier house price forecasts for 2018 were projecting a 5-6% house price growth rate for the year, FNB have now adjusted their house price expectation for 2018 to the 3-4% range.

What does this mean for a savvy real estate investor It makes for exceptional buying opportunities and the ability to lock in very aggressive pricing. Because you make your money in real estate when you buy rather than when you sell, there has been no better time than now to make money in property.