Property & Wealth

State of the property sector a mixed bag

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While the municipal elections made greedy demands on our attention in recent months, it is important to save some thoughts for the more constantly dominating factors in our lives.

For the majority of South Africans one of these is in the sector where they will make the biggest investment of their lives – the property sector. For that reason, we thought it appropriate to reflect on the current state of the national property market.

To do so, we first need to assess the state of the national economy where, to put it mildly, severe headwinds are building up.

State of economy

From the IMF down to our own SA Reserve Bank, estimates of growth have been slashed downward.

And, with an annual population growth of about 2.5%, our present 2016/17 economic growth estimate of 0,5% shows how, when considering the 6.5% average consumer price index (CPI), the economy is way behind in its job creation targets. In fact, South Africa is in a net loss position so far this year on this front.

This is a sentiment shared by FNB property analyst, John Loos, who foresees tough economic conditions in an environment of quietly rising interest rates.

That, combined with rising personal tax rates, is indicative of a slowing down in real income growth.

Loos points to a strong rise in the area of so-called ‘home operating costs’, when one factors in the creeping increases in finance charges, banking costs and the year-on-year above-inflation rise of municipal rates and tariffs.

Fortunately, however, house price inflation rates (HPIR) are also surging upwards. For example, in the small-sized home category, where prices average about R620 000, the HPIR was running at a whopping 12.5% during the second quarter of 2016.

Reports that there has been a massive recent boost in making mortgage finance available to public sector personnel and management, are also heartening

This good news came from the huge Government Employees Pension Fund (GEPF), which recently gave notice that it will invest some R10.5 billion to assist and support government employees in becoming homeowners.

The Public Investment Corporation, the Government Employees Housing Scheme and SA Home Loans partnered with the GEPF to enable over 500 000 public servants, who already receive a state housing allowance, to become homeowners.

Positive empowerment

We have, especially in this column, consistently promoted the economic empowerment of as many South African citizens as possible through providing them with resources to build personal wealth through property ownership.

The beauty of this scheme is that it caters for government employees in the R3 500 - R15 000 income range who do not qualify for normal bank-issued housing loans or housing subsidies.

The scheme’s merits fest in bringing a substantial chunk of otherwise excluded wage earners into the mainstream of private property.

In addition, the PIC has committed an additional R500 million to set up the so-called Affordable Housing Development Company, which creates a much needed player into the market for the development of affordable housing schemes.

Agricultural sector

It is also important to take note of what is happening in the agricultural sector, where the Land Bank (LB) is making big strides in promoting the development and growth of this much maligned sector, which once, next to mining, was the largest employer in the country.

It is not difficult to imagine the challenges facing the LB in reaching all those emerging farmers who can be found in the remotest outreaches of the country – there where it is needed the most.

The Land Bank has a statutory mandate, among other responsibilities, to support the overall development of emerging farmers.

While the high-risk emerging farmers are only awarded 10% of its loan book and 90% to established and low-risk commercial farmers, bear in mind that the bank’s book has grown from R14 billion to R40 billion over the past six years.

Expropriation Bill back in mix

And, speaking of the public sector, it is noteworthy that President Jacob Zuma in the final stages of the election campaign, and in a major reversal for the ANC position thus far, has referred the controversial Expropriation Bill back to parliament. His motivation was that proper procedures were not followed and its approval may be unconstitutional.

It will be recalled that from the start there were suspicions that the bill was aimed at giving government the power to drive its land reform policy by way of large-scale expropriation.

Reason is that, in essence, the Bill allows both fixed and movable property, to be expropriated simply for a public (read ‘any’) purpose or in the public interest.

While the Bill has and still faces fierce resistance from all the opposition parties and many civil society organisations, Jeremy Cronin, the Deputy Minister of Public works, has consistently defended the Bill, saying that it is fully consistent with the Constitution’s property clause that guarantees property rights and fair compensation.

Nevertheless, one needs to heed the intentions of the far left at this time – the EFF has, on numerous occasions, affirmed their intention to accelerate land distribution in all the municipalities they “may control” after the 3rd August.

Hence, referring the bill back to parliament at this stage might have been for something more than just a mere technicality?

by Eve van Basten

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