When the Light at the End of the Tunnel is Not a Train

When the Light at the End of the Tunnel is Not a Train

As South Africa approaches the end of the Q1 2018, I can’t help but think of the straight-talking Sir Winston Churchill and draw parallels between his circumstances as he assumed the mantle of UK Prime Minister 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 going 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 responsibility.” It’s something President Cyril Ramaphosa appears to understand only too well.  All indications are positive so far are that he intends to throw everything at economic recovery, including political stability and cuts to government spending.

Not a moment too soon, either. It’s doubtful South Africa would have been able to lurch to 2019’s election day without collateral damage and the casualties would have come from our populace and the private sector that underpins the economy.

The property industry would most likely not have emerged unscathed either. If one looks at the numbers provided by FNB Property Economist John Loos, “with widespread weakness in sentiment late in 2017, showing up in both Consumer and Business Confidence 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” (Average 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 properties 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 financial 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, significantly 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, 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 already come alive over the past couple of months in anticipation of the change of leadership.

I’m extremely bullish about Ramaphosa’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 sentiment. We’ll see increased activity, there will be more stock and buyers will invest 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 private sector can’t lose momentum or focus, 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 resolute purpose behind them,” said Churchill, and he’s right.

Now we all just need to get stuck in and get it done.




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