Politicians won't move property market yet

FNB's John Loos says residential market has "bigger fish to fry", in assessment of recent events.

The recent change of guard at the helm of South Africa Inc. has rattled people - and is "unlikely to change an already deteriorating residential market trend", according to FNB Home Loans' property strategist John Loos.

He believes dramatic political events which have seen low-profile politician Kgalema Motlanthe being named as next President and Cabinet Ministers resigning en masse have caused a "stir" but will not have a significant impact on residential real estate.

In a report issued on Thursday he said: "Insofar as such events create negative sentiment in and towards the country, they are potentially negative for residential property performance."

The direct impact, said Loos, can be in the form of higher emigration rates from sensitive "suburban" markets, which are still dominated by the three minority population groups.

"Indirect impacts can occur when general investor confidence is negatively affected, which can have a negative impact on economic growth and thus on purchasing power for residential property."

Loos said the week's events "have perhaps created the perception of divisions within the ANC and a faction whose succession plan was not clearly in place....especially given the temporary uncertainty surrounding (finance) Minister Manuel".

However, this is "far from being a crisis", is his view. Compared to Apartheid or Zimbabwean issues, "it can't really even be called a crisis". "I would prefer to call it democracy functioning reasonably well."

Constitutional procedures are being observed, said Loos, and outgoing President Thabo Mbeki "has accepted the decision, has not mobilised his army or a band of thugs to protect his position, and has not started to import weapons from China or any such thing".

"He has just stepped down in response, and the country does not appear to need any special negotiation process to remove him from power."

Loos said a public spat between Mbeki and popular ANC leader Jacob Zuma earlier "looked pretty tame" compared to the showdown between US politicians of late.

However, events can't be expected to change the trends of declining residential transactions, mortgage applications and emigration selling.

Loos said the "list of negatives" for the residential market "is long, and we certainly don't need more".

"The beleaguered residential market can ill-afford more bad news."

Loos said economic factors should overshadow political events and said the following would be needed to turn the residential sector for the better:

  • An expect turn in inflation in the final quarter of the year, with an improvement in numbers "expected to cause real disposable income growth to turn upward as from early-2009";
  • A declining debt-to-disposable income ratio for households, which in turn is expected to cause the debt-service ratio to decline in the last three months of this year;
  • Interest rates ticking down, which is expected from April; and
  • The "ultimate recovery of the global economy", with a positive impact on the local economy.

Loos's view is that "a year from now, when the dust has settled on the current process of political leadership change", the economy turns and 2010 with its benefits become more apparent to people, there will be a significant decline in emigration.

He added that more important than the people shifts and policy wish lists are significant policy shifts.

"The world's and our own political history tells us that the utterances from new leaders on their path to power are not always a good indication of what policies are to follow," said Loos.

Meanwhile, estate agency boss Samuel Seeff of Seeff Properties has warned that an improvement in the market may now be further off than expected - thanks in part to latest political developments.

The residential sector has taken a battering this year, with an estimated 20 000 estate agents leaving the market amid plummeting sales' volumes and as property prices have ticked downwards.

The recession in the housing market has been linked in part to negative sentiment about South Africa, with sellers increasingly citing emigration as a reason to offload a home, and also to consumers finding it harder to obtain financing for various reasons.

Many sellers and industry players have been pinning their hopes on the interest rate cycle turning the corner, but even that looks unlikely, judging from hints from SA Reserve Bank governor Tito Mboweni.

25 September 2008 it can't really even be called a crisis. I would prefer to call it democracy functioning reasonably well." John Loos, property strategist, FNB Home Loans John Loos, FNB, home loans, Kgalema Motlanthe, politicians, residential, Samuel Seeff, Tito Mboweni, SA Reserve Bank, interest rates, South Africa, housing, estate agents, 25 September 2008

Article by: http://www.sapropertyinvestor.co.za/view_article.php?id=http://www.realestateweb.co.za/realestateweb/view/realestateweb/en/page196?oid=21466&sn=Detail&Link=1