Surviving the crash of 2008

Strap yourself in; clean up your financial act. Things set to look worse before they get better.

Although the world was awash with news about plummeting stock markets, troubled financial systems and expectations of global recession this week, some local estate agency bosses were quite cheerful about the state of the local market.

Statements from the Rawson, Pam Golding Property and Re/max groups were upbeat, some suggesting we may have seen the worst in the residential market.

News that interest rates would remain unchanged gave added hope that this is as high as interest rates will go. An uptick in sales and an increase in attendance at show houses are among the positive signs for them.

Estate agents generally don't have a track record for speaking negatively about the market when things are genuinely looking awful, so it is perhaps unsurprising that some take their opinions about an improvement with a proverbial pinch-of-salt.

And of course, as these are private companies and therefore not compelled to submit to certain levels of disclosure and checks, one has to take them at their word that these numbers are right.

Is the improvement in sales we are hearing about a clear sign that things are set to look brighter for some? Or useful fodder to give buyers who have been sitting on the fence?

Bill Rawson, chairman of the Rawson Group, said, when revealing that sales were up a dramatic 250% in September: "Despite the difficulties with getting bond finance, now is a wonderful time to buy."

"This is a message we need to put out into the market which, in its reaction to the downturn, have now grown overly cautious and negative. Property remains a top-line investment and this has never been truer than in today's tough sale conditions," said Rawson.

He's right that for longer-term investors real estate, carefully-chosen, should be a sound investment.

However, in the shorter-term those with mortgages and rents to pay are likely to experience at the very least a financial squeeze. Many businesses and consumers are likely to run into big money trouble - and bank managers are stingy these days when it comes to credit.

Absa, which has been tracking housing prices for decades, now expects the turn-around only next year some time. Real property prices (when inflation is taken into account) have fallen by about an annual 10%, which means your money has lost purchasing power if you have held it in bricks-and-mortar of late.

The analysis of the South African economy by Barry Sergeant of Moneyweb (parent company to Realestateweb) this week points to tougher times ahead, not easier ones. He reckons South African interest rates can't be cut in line with the globally co-ordinated central bank packages because our economy is in poor shape.

We have a staggeringly high unemployment rate and trade deficits, combined with puny foreign reserves, that the country is left "with little choice but to perform somersaults, and other awkward things, to attract foreign cash inflows".

Investors borrow elsewhere at a lower interest rate and send their money here to earn more and make a quick buck, notes Sergeant.

And someone else who still sees dark clouds on the horizon, for largely economic reasons, is Mike Flax, executive director of Madison Property Fund Managers (JSE:MDN). He warned this week that up to a third of jobs could be shed in the property sector over the next two years.

"All real estate players in South Africa will now have to tighten their belts and operate more leanly and more intelligently. In the last few years, almost any developer, good or bad, who was able to get bank finance could make a fast buck. That time is now very definitely past," said Flax .

Not to be overlooked are political issues. As Realestateweb visitor CJ pointed out this week: "Add in more global meltdown, multiple recessions, plus a dash of Zuma election fun, and we are in for interesting times."

No-one should have been surprised that interest rates weren't cut this week. Among the reasons SA Reserve Bank governor Tito Mboweni cited for the decision on Thursday was that "wages show inflation expectations are not anchored".

There has been no better indicator of this than SA Reserve Bank governor Tito Mboweni's own recent salary increase, just shy of an annual 30% - and considerably higher than inflation expectations.

Few of us are in the fortunate position to command dramatically higher annual salary increases like that. So what are us ordinary income-earners to do?

Get back to old-fashioned basics. Draw up a budget (a list of income and all your bills) and trim unnecessary monthly expenses. Shaving costs here and there will add up.

Revisit your car and household insurance. Insist on a reduction in your premium for your car that's now a year older and shop around for a better rate. Insurance companies, like banks, don't reward you for all the years you have been with them.

Look at swapping your home loan for a better deal, too.

Swap your car for a more economic, second-hand model if it makes sense for you; and ditch the cellphone contract for a pay-as-you go.

You'll be amazed at how much you can cut from spending by giving up the small treats, like the take-away coffee on the way to work, the magazines you buy with your groceries and the cigars at the bar.

If you haven't saved a nest-egg to help you cope in a personal financial crisis, start now. Jobs cannot be taken for granted.

As we have seen from domestic political events and astonishing financial failures on Wall Street, when things go awry, they can do so very quickly.

Article by: Jackie Cameron - www.realestateweb.co.za