John Loos' deep-dive into the economy and predictions for the near future

Access to real-time accurate information is valuable. One of South Africa's leading property economists, John Loos, recently provided the Seeff group with a private session to deep-dive into the economy and predictions for the near future. The SARB leading economic indicator is a useful tool as it gives us a good idea of the extent of the pending recovery - currently, this measures 1,6% as a year-on-year percentage change - still somewhat subdued, showing a slower recovery.

The prime lending rate at 11,50% remains high, but the scene is set for future rate cutting as our current CPI inflation rate is down further to 3,8% in September - steadily down from 4,4%, 4,6% and 5,1% in the previous three months. More importantly, Producer Price Inflation (PPI) is down 2,8% from 4,2% and 4,6% in the prior two months. GDP growth is predicted to go from the current rate of 0,3% to 1%, 1,9% and 2,2% over the next three to four years.

Real retail sales in South Africa remain at around R98bn annually - similar to pre-covid levels showing that retailers are still battling the high cost of credit and lower consumer disposable income. Real disposable income growth has decreased from a peak of 7% in 2006-2007 to its current level of -0,8%. We are however in better shape overall than in 2008 as measured by the household debt to disposable income. This was 78,1% in the 2006-2007 period leading up to the global financial crisis and is now down at 63,3%. Paying for this debt is measured by the service ratio which peaked at 13% in 2008 and is currently at 9,2%.

FNB conduct detailed surveys in the market and produces intelligently compiled perception stats from this. The level of activity overall in the residential property market measured on a scale of 1 to 10 is provided by FNB to be 5,83. Satisfaction with current conditions in the residential property market ranges from a high of 68% in Gauteng and a low of 43% in KZN. These stats measure expectations rather than actual sales data. Our northern friends are therefore feeling somewhat better than we are in KZN at the moment.

The global geo-political environment in the Middle East does present some risk to an old price shock, which could impact on the South African economy. A high oil price can precipitate a recession and directly impact general demand including property. High oil prices are inflationary and could impact our interest rate-cutting cycle.

The outlook for the property sector is that the cost increases provided by electricity tariffs and municipal rates are expected to be above the inflation rate. Reliability of services is seen to be improved first before cost containment occurs. The operating costs per square meter are therefore anticipated to remain above inflation levels. Landlords can therefore be expected to feel this cost squeeze for a period.

In summary, we can expect more demand for property going into the next 6 months, but pricing can be expected to lag, continuing to favour buyers.