The Good and Bad news

All property owners and investors should always be looking forward to ascertain the way that the economic environment might be changing in ways that could affect your ownership and investments. This week brings two such items to the fore: first, the spike in the oil prices and second, the prospects of the South African GDP.

Good News
President Thabo Mbeki has reiterated his view that the South African economy should be re-structured to achieve a growth rate higher than 6% and has set up a task team to implement this. This is very significant as it represents the highest growth rate that the country will have seen for decades. The spin-off for property ownership is that the growth fuels a demand for housing and this should promote the property boom of the last few years.

Bad News
That was the good news. The bad news is the spike in the oil prices over the last few months and the consequent impact on inflation. Soon we'll be paying more for a tank of fuel than we do for a small microwave oven. Ouch. The flow through into the economy could be another percentage or two on our low inflation outlook.

We have been relatively lucky so far in this oil spike as the Rand has strengthened at the same time mitigating the effects of this to some extent. The Rand probably cannot sustain this strengthening but it is probably partially attributable to the anticipation of the inflow of currency from the Barclays ABSA deal that is keeping it strong. It is also not desirable for the manufacturing and resource side of the economy to have such a strong Rand.

South Africa finds itself more and more in a difficult situation where if either variable, the Rand or the oil price, deteriorates the effects on the economy is going to be substantially negative and if both worsen at the same time we could be in for a double bad whammy. Money is already moving in the market to shares that would benefit from either or both these events taking place as can be seen by the escalating prices of SASOL which represents both dollar and oil investments.

So for property owners and investors the next few months should prove quite interesting. If the oil price breaks $70 a barrel and the Rand slides to R7/$ you might want to think about fixing those interest rates.

Article by: Dave Welmans - (