Real Estate Investor Magazine South Africa Real Estate Investor Magazine March 2018 | Page 38

MARKET OPINION
The Light at the
End of the Tunnel
Residential Stands Strong
LEW GEFFEN
Chairman of Lew Geffen
Sotheby’s International Realty
A
s South Africa approaches the
end of the Q1 2018, I can’t help
but think of the straight-talking
Sir Winston Churchill and draw par-
allels between his circumstances as he
assumed the mantle of UK Prime Min-
ister in the year following the start of
the Second World War, and where our
country is today.
A quote that is, rightly or wrongly,
attributed to Churchill is: “If you’re go-
ing through hell, keep going” and it’s a
sentiment that South Africans will feel
for a while after Jacob Zuma’s disastrous
tenure in the Presidency.
Another Churchill quote brings us
neatly up to the present, though, and
that is: “The price of greatness is respon-
sibility.” It’s something President Cyril
Ramaphosa appears to understand only
too well. All indications are positive so
far are that he intends to throw every-
thing at economic recovery, including
political stability and cuts to govern-
ment spending.
Not a moment too soon, either. It’s
doubtful South Africa would have been
able to lurch to 2019’s election day with-
out collateral damage and the casualties
would have come from our populace
and the private sector that underpins
the economy.
The property industry would most
36
likely not have emerged unscathed ei-
ther. If one looks at the numbers pro-
vided by FNB Property Economist
John Loos, “with widespread weakness
in sentiment late in 2017, showing up
in both Consumer and Business Con-
fidence readings as well as the Rand, it
came as no surprise to see households
remain a relatively conservative bunch
at the time of the fourth quarter 2017
FNB Estate Agent survey, which was
done in October”.
A separate report issued by the bank
on transactions across price bands
showed the most significant slowing in
the “Luxury Area Value Band” (Aver-
age Price R2.335 million) price growth
since 2014. In fact activity across the top
three (of five bands) dropped in the last
quarter of 2017.
At the same time, FNB’s first report
noted that only some 11% of all home
sellers across country had put their prop-
erties on the market during Q4 with the
express purpose of upgrading to a better
residence. This was unchanged from the
previous quarter, but 45% lower than
the multi-year high of 20% in the final
quarter of 2013.
“Recent years of economic weakness,
and interest rates off their pre-2014
lows, have caused a slight increase in fi-
nancial stress-related home selling since
2015, but nothing that would appear
concerning. The estimated percentage
of sellers ‘selling to downscale due to
financial pressure’ was at 14% in the
fourth quarter of 2017, unchanged from
the prior quarter and only mildly higher
than the 11% multi-year low reached in
the third quarter of 2015,” said Loos.
But that was last year. What does the
picture look like now? Thankfully, sig-
nificantly better.
Ramaphosa is ensconced in Tuynhuys
and he delivered a well received State of
the Nation Address swiftly followed by
a “tough but hopeful” budget by Finance
Minister Malusi Gigaba. Afterwards,
MARCH 2018 SA Real Estate Investor Magazine
amidst broadly positive reaction from
investors, South African stocks gained
and the rand strengthened to levels not
seen since 2015.
The property market, too, has al-
ready come alive over the past couple of
months in anticipation of the change of
leadership.
I’m extremely bullish about Rama-
phosa’s ability to lead South Africa into
a period of economic prosperity. He is a
man of action, he understands business
and in property market terms we’ll see
equilibrium returning very soon. The
fact that the upper end of the market
has already started moving again this
year shows investors are regaining their
appetites for the long game.
There’s no doubt the property market
will strengthen fairly swiftly in line with
a far more positive general national sen-
timent. We’ll see increased activity, there
will be more stock and buyers will in-
vest with much greater confidence than
they’ve felt in a long time. We’ll also
start seeing a price recovery across the
country, with steady and stable growth
being the hallmark of the year.
It seems only fair to conclude with
more words of wisdom from Churchill,
who said: “In finance, everything that
is agreeable is unsound and everything
that is sound is disagreeable.”
The percentage point increase in VAT
and the higher fuel levy announced in
the budget do indicate further belt
tightening for consumers, but with any
luck only in the short term while the
economy gets back on track.
Both the government and the pri-
vate sector can’t lose momentum or fo-
cus, though, because it’s going to take a
sustained collective effort to repair the
damage. “It is wonderful what great
strides can be made when there is a res-
olute purpose behind them,” said Chur-
chill, and he’s right.
Now we all just need to get stuck in
and get it done.