ESKOM AND OTHER HOME COST EFFECTS
FNB - South Africa
While the debate rages as to how much we're going to pay for power and other utilities, it's time to start planning for the consequences.
What will the probable response be to the steadily rising costs of operating homes, in which councils and utilities look set to play an important but not the only role? In the short term, it would predominantly be to cut back on usage of services such as power and water where possible. Such options are often limited in the short term, because the size of the property and its built in facilities (swimming pools for instance) cause it to consume significant quantities of electricity and water. In the longer term, however, the demand-side options
become more significant, because over time the design of new properties can change.
Increasing urban land scarcity, often related to limited investment in new infrastructure, especially in the area of transport, has already caused some densification of urban living through the development of new homes on smaller-sized stands. Now, more significant increases in costs related to household operation, often aimed at funding the growing infrastructure shortfalls, threatens to speed up this densification process - i.e. higher home operating costs means we ultimately buy and build "less house" on average.
FNB - Eskom
Property Overview - 4th Quarter 2009
FNB - South Africa
All major sectors of the property market have felt the impact of, firstly, a major global commodity price inflation surge and its resultant impact on interest rates up until 2008, and secondly, the impact of the recession that set in during the latter stage of 2008.
Residential price growth had been broadly slowing since early-2005, leading the overall property cycle. By the 1st half of 2009, the FNB House Price Index was showing price deflation.
By the first half of 2009, the IPD was reporting deflation in commercial property valuations too. Of the 3 commercial property sub-sectors, the retail sector has seen its performance slow since 2006, whereas industrial property and office space remained strong until as recently as 2007, and as such are seen as "laggards" in the property cycle. Ultimately, though, these two sectors could not defy economic realities in the form of recession, and experienced a sharp drop in total returns in 2008.
Finally, comes farmland, which appeared to experience its best year as recently as 2008, with a major price valuations surge, accompanying the combination of a strong growth year in agricultural output as well as a huge global and local food price inflation surge. In 2009, however, the farm property valuations inflation rate has also move steadily lower, following the end of the food price boom as well as an agriculture sector recession setting in.
Recently, we have seen the residential market turning for the better in response to lower interest rates. The commercial property sector should benefit from lower interest rates too over time, while both sectors are set to experience some additional support from an improving economic growth rate as 2010 approaches.
FNB 4th Quarter Property Overview
Absa House Price Indices - November 2009
Absa - South Africa
Pace of house price growth accelerating
Based on Absa's calculations, nominal year-on-year house price growth in the South African housing market picked up further in November 2009, with the prospect of price deflation of less than 0,5% for the full year. After adjustment for the effect of inflation, house prices continued to decline in real terms up to October this year, albeit at a slower pace.
Various economic indicators point to a gradual recovery in the South African economy. These include the South African Reserve Bank's leading business cycle indicator, which has risen uninterruptedly for a period of six months up to September this year; positive quarter-on-quarter real GDP growth of 0,9% in the third quarter; an improvement in the purchasing managers index, which measures manufacturing activity; and slightly higher levels of business and consumer confidence. However, households are still struggling with relatively high levels of debt in relation to income, tough labour market conditions and declining real disposable income. In view of these developments, housing market conditions are expected to improve further in 2010, but it is set to be a gradual process with nominal price growth forecast to remain in single digits over the next twelve months.
In the first eleven months of 2009, nominal house price deflation averaged 0,5%, compared with the same period last year. If recent trends in price levels prove to be sustainable, nominal price growth of at least 5% can be expected in 2010. Real house prices are forecast to decline for a second consecutive year in 2009, with at best a small real increase next year, based on nominal house price and consumer price inflation trends and projections.
Absa House Price Indices
Tenants must avoid distressed landlords
Property24.com - South Africa
Tenants in rental properties are also being put at risk when banks (and other creditors) take back properties.
Tony Clarke, MD of Rawson Properties, says they can lose their homes as a result of their landlords being unable to meet his regular monthly bond repayments.
Clarke says the Cape Dutch legal principle on which SA law regarding this matter has traditionally been based is "huur gaan voor koop". This means that the tenant's lease and welfare take precedence over other considerations. If the owner of the property is falling behind in his bond repayments the bank is expected to show restraint, at least initially, with regards to evicting the tenant and is expected to find some other solution.
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ESKOM AND OTHER HOME COST EFFECTS
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