Scott Picken, CEO IPS, Jan 09
I have been asked to try and understand the property market in 2009, an interesting task! At the end of 2008, we spoke of the challenges of 2008 and the exciting opportunities which were before us in 2009. The global community has undergone a paradigm shift where what was common practice has changed, and global markets, banks, companies and individuals are coming to terms with the new era of doing business in amongst this uncertainty. The Chinese only have one word for ‘crisis’ and ‘opportunity’, ‘wēijī’ and I firmly believe that if one can see through the short term situation, focus on fundamentals and act on these principles, they will find that the genuine value they invested in this year, will provide the opportunity to set themselves up for life! To achieve this though, you will have to be creative to overcome the obstacles.
The year begins with allot of hope and possibly the biggest example of the impossible becoming possible with Barrack Obama being sworn in as the 44th American President. He has completely challenged normality and won and now USA and the global environment rest on his shoulders in the hope that he can resurrect the global economy. He won buy being creative, by changing the way things were done, by communicating through the new technology mediums and most importantly by reaching the hearts and minds of the people on the street. He won by thinking out of the box and turning the crisis into his biggest opportunity!
In the South African market, many people have been hesitant about property in the last 18 months. However there is now real value, rents are rising and interest rates are coming down. South Africa has been slow in reducing interest rates and this can be seen by Australia. Since September 08 they have reduced their interest rates by 30% and it has had a marked affect on the market, with momentum really starting to come back into the market. I believe South Africa is 6 months behind and the expected rate cut in February and March, will begin to stimulate the market like in Australia. The biggest challenge in any market is calling the bottom of the market. I personally believe you can only ever call the bottom in hindsight and that you need to evaluate every opportunity, based on its potential. The second biggest challenge you currently have at the moment is you can find a ‘no brainer’ of an investment and still battle to get finance. It will be a time to get creative! Keep your eye open for some of the first investments opportunities for 2009.
However to start with, get your momentum going; watch this great video to help you achieve the most of your potential in 2009! – click here.
I finish with a saying my mother gave me at the end of last year, “Rather than worry about the storm, learn to dance in the rain!”
Be creative, have a great 2009 and get started!
Regards
Scott Picken
CEO, International Property Solutions (IPS)
www.ipsinvest.com
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Friday, January 30, 2009
Bold rate cuts urged as factory prices stall
Business Day, Jan 30th
PRICE increases for goods leaving local farms, factories and mines eased to an 11-month low last month, subdued by falling fuel and metal prices and giving the Reserve Bank more scope to slash interest rates next week.
The annual rise in factory gate prices measured by the producer price index (PPI) retreated to 11% from 12,6% in November, well below consensus forecasts and adding to evidence that inflation is falling much faster than expected.
Coming on the heels of news that consumer inflation also slowed more than expected in the same month, analysts said the data sealed the case for a full percentage point interest rate cut at the Bank’s monetary policy committee (MPC) meeting.
“There is now clearly a window of opportunity for the Bank to be more aggressive in cutting rates,” said Stanlib economist Kevin Lings. “A reduction of 100 basis points is certainly very feasible at the MPC.”
The Bank signalled the start of an easing cycle in interest rates with a half percentage point cut last month, taking the repo rate down to 11,5%.
With inflation on the back foot and growth in the economy slowing to a near standstill, lending rates are expected to fall by another 2,5 to four percentage points this year.
“Today’s PPI figure is good news for the consumer inflation outlook, as it provides further evidence that both local and global inflationary pressures are slowing,” said Nedbank economist Carmen Altenkirch.
“We expect that the Bank may opt to front-load interest rate cuts, opting for more aggressive loosening early in the year followed by more modest easing in the second half.”
Government bonds extended gains prompted by the benign consumer price figures earlier in the week. The yield on the R157 bond due in 2015 fell 12 basis points to 7,34% yesterday.
It was the fourth month in a row that the annual rise in PPI slowed, after peaking at 19,1% in August. During the month, the PPI index fell 1,1%, the data from Statistics SA showed.
Most of that fall was spurred by lower prices for fuel and minerals, which have plunged in the past few months as a recession gripped the global economy.
Electricity costs and food prices at the agricultural level offset some of the downward pressure. Over the whole year, producer prices rose 14,2%, up steeply from 10,9% in 2007.
But analysts expect producer prices to subside dramatically this year, which will feed through to consumer inflation.
Efficient Research economist Doret Els predicts that the PPI will show an average 5,5% rise this year, tamed mainly by lower commodity prices, which make up most of the producer basket.
Price rises for exported goods eased dramatically to 4,8% from 11,2% in November, while the annual increase for imports also slumped to 3,4% from 6,3%.
But there are still concerns that volatility in the rand could tarnish the benign price outlook in SA by making imports more expensive. The unit depreciated by nearly 30% against the dollar last year, making it the world’s worst-performing currency.
So far this year, it has weakened about 4% against a trade-weighted basket of currencies.
“Any further weakening in the rand might reduce the expected sharp slowdown in PPI as commodities are often priced at import parity,” Altenkirch said. But she pointed out that the construction industry — SA’s fastest growing — had come under pressure as companies put expansion plans on hold.
That should help subdue prices of bricks, iron and steel.
PRICE increases for goods leaving local farms, factories and mines eased to an 11-month low last month, subdued by falling fuel and metal prices and giving the Reserve Bank more scope to slash interest rates next week.
The annual rise in factory gate prices measured by the producer price index (PPI) retreated to 11% from 12,6% in November, well below consensus forecasts and adding to evidence that inflation is falling much faster than expected.
Coming on the heels of news that consumer inflation also slowed more than expected in the same month, analysts said the data sealed the case for a full percentage point interest rate cut at the Bank’s monetary policy committee (MPC) meeting.
“There is now clearly a window of opportunity for the Bank to be more aggressive in cutting rates,” said Stanlib economist Kevin Lings. “A reduction of 100 basis points is certainly very feasible at the MPC.”
The Bank signalled the start of an easing cycle in interest rates with a half percentage point cut last month, taking the repo rate down to 11,5%.
With inflation on the back foot and growth in the economy slowing to a near standstill, lending rates are expected to fall by another 2,5 to four percentage points this year.
“Today’s PPI figure is good news for the consumer inflation outlook, as it provides further evidence that both local and global inflationary pressures are slowing,” said Nedbank economist Carmen Altenkirch.
“We expect that the Bank may opt to front-load interest rate cuts, opting for more aggressive loosening early in the year followed by more modest easing in the second half.”
Government bonds extended gains prompted by the benign consumer price figures earlier in the week. The yield on the R157 bond due in 2015 fell 12 basis points to 7,34% yesterday.
It was the fourth month in a row that the annual rise in PPI slowed, after peaking at 19,1% in August. During the month, the PPI index fell 1,1%, the data from Statistics SA showed.
Most of that fall was spurred by lower prices for fuel and minerals, which have plunged in the past few months as a recession gripped the global economy.
Electricity costs and food prices at the agricultural level offset some of the downward pressure. Over the whole year, producer prices rose 14,2%, up steeply from 10,9% in 2007.
But analysts expect producer prices to subside dramatically this year, which will feed through to consumer inflation.
Efficient Research economist Doret Els predicts that the PPI will show an average 5,5% rise this year, tamed mainly by lower commodity prices, which make up most of the producer basket.
Price rises for exported goods eased dramatically to 4,8% from 11,2% in November, while the annual increase for imports also slumped to 3,4% from 6,3%.
But there are still concerns that volatility in the rand could tarnish the benign price outlook in SA by making imports more expensive. The unit depreciated by nearly 30% against the dollar last year, making it the world’s worst-performing currency.
So far this year, it has weakened about 4% against a trade-weighted basket of currencies.
“Any further weakening in the rand might reduce the expected sharp slowdown in PPI as commodities are often priced at import parity,” Altenkirch said. But she pointed out that the construction industry — SA’s fastest growing — had come under pressure as companies put expansion plans on hold.
That should help subdue prices of bricks, iron and steel.
Wednesday, January 21, 2009
Australian Property Market, through the eyes of a South African - Jan 2009
Scott Picken, CEO of IPS has just spent 4 weeks in Australia exploring the Australian Property market. There is allot of global turmoil in property, but there are some very interesting characteristics of the Australian Property Market.
Scott has written a report about the market and he says, “Although this needs to be very detailed and thorough, I will try and focus on the most pertinent points which I believe are essential in understanding the market there.” Please Click here to download the full version of the detailed review of the Australian Property Market through a South African's eyes.
Briefly, like South Africa, the Australians know that there is tremendous global uncertainty, and because of this and lack of available credit, things have slowed, but it is not as dire and as negative as the US or UK markets. They have 4 of the top 15 most secure banks in the world, which brings stability to the market and the government initiatives have created the desired effect of stimulating demand. An example of this is the government has doubled the First Time Buyers Allowance and as long as First Time buyer buys before the 30th of June 2009 they get $21 000 (new build) or $14 000 (existing) and this has created huge demand in this sector.
This, along with the fact that interest rates have dropped 30% over the last 3 months (now 4.25% from over 8%) has vastly improved affordability, which is stabilising the market. They are expecting further drops in interest rates in February.
However across Australia the gap between property supply and demand continues to grow. Supply continues to decrease based on current market conditions - over the year ending June-08 approximately 157,000 new dwellings commenced construction (in Nov 08 building approvals were only 115 000); well below the 200,000 dwellings estimated to be required by the Commonwealth Treasury. In fact, this is around 43,000 too few dwellings being built over the year and getting worse. Australia’s permanent population growth is near record levels, increasing by just under 320,000 people over the last twelve months with more than half that growth coming from overseas migration. This is also examined in contrast to unemployment and the effects it might have.
In conclusion, Australia is being affected by the global situation, but they have strong fundamentals and a government which has a surplus budget and therefore can implement stimulus packages which are having a strong effect on the market. It is very clear where the market activity is and where both the growth and rental market is placed and we believe an investor should be focusing between £300 000 and $600 000, either inner city apartments or houses which are in strategically good locations.
Click here to download the full version or go to www.ipsinvest.com and search under Australia and Documents.
Scott has written a report about the market and he says, “Although this needs to be very detailed and thorough, I will try and focus on the most pertinent points which I believe are essential in understanding the market there.” Please Click here to download the full version of the detailed review of the Australian Property Market through a South African's eyes.
Briefly, like South Africa, the Australians know that there is tremendous global uncertainty, and because of this and lack of available credit, things have slowed, but it is not as dire and as negative as the US or UK markets. They have 4 of the top 15 most secure banks in the world, which brings stability to the market and the government initiatives have created the desired effect of stimulating demand. An example of this is the government has doubled the First Time Buyers Allowance and as long as First Time buyer buys before the 30th of June 2009 they get $21 000 (new build) or $14 000 (existing) and this has created huge demand in this sector.
This, along with the fact that interest rates have dropped 30% over the last 3 months (now 4.25% from over 8%) has vastly improved affordability, which is stabilising the market. They are expecting further drops in interest rates in February.
However across Australia the gap between property supply and demand continues to grow. Supply continues to decrease based on current market conditions - over the year ending June-08 approximately 157,000 new dwellings commenced construction (in Nov 08 building approvals were only 115 000); well below the 200,000 dwellings estimated to be required by the Commonwealth Treasury. In fact, this is around 43,000 too few dwellings being built over the year and getting worse. Australia’s permanent population growth is near record levels, increasing by just under 320,000 people over the last twelve months with more than half that growth coming from overseas migration. This is also examined in contrast to unemployment and the effects it might have.
In conclusion, Australia is being affected by the global situation, but they have strong fundamentals and a government which has a surplus budget and therefore can implement stimulus packages which are having a strong effect on the market. It is very clear where the market activity is and where both the growth and rental market is placed and we believe an investor should be focusing between £300 000 and $600 000, either inner city apartments or houses which are in strategically good locations.
Click here to download the full version or go to www.ipsinvest.com and search under Australia and Documents.
Friday, January 16, 2009
Steep rate cut expected in Feb in South Africa
Jan 07 2009 17:48 Ines Schumacher
Johannesburg - Inflation could fall to as low as 6% in January and therefore back into government's inflation band - a development that could prompt a heavy cut in interest rates, economists have said.
"The inflation rate for January stands to decline massively from the 12.1% CPIX inflation rate for November to little over 6% for January," said Tony Twine, a senior economist for Econometrix, in a note to clients. CPIX, or the consumer price index excluding mortgage bonds, represents the cost of certain goods for the man in the street.
"Our prediction is 7% which is a dramatic fall in the inflation rate," said Kay Walsh, an economist at Rand Merchant Bank (RMB).
The South African Reserve Bank would then weigh into interest rates, she said. "We forecast that the MPC [monetary policy committee] will cut 50 basis points at every meeting until the end of the year."
Twine predicts that interest rates could be cut as much as 100 basis points at the MPC's next meeting, scheduled for February 11 and 12.
A 60% decline in the price of oil from its 2008 peak of about $147/barrel and technical changes to the way inflation is calculated in South Africa were behind the lower inflation expectations. Oil is trading at about $48/bbl.
Apart from the petrol price cut, lower food costs and the replacement of interest on home loans with owners' equivalent rent (the rental a homeowner forgoes by living in his house instead of renting it out) would present a convincing argument to the MPC to cut interest rates, said Econometrix in its Ecobulletin dated January 5.
As for the re-weighting of the CPI, it is a recurring statistical procedure. "The new weights would most likely result in a decline in the level of measured inflation," said Statistics SA on its website. For one, food will carry a smaller weight, while vehicles will carry a higher one.
Even though the January inflation rate will be unavailable to the MPC at its February meeting, it can make an accurate estimate to base its decision on, said Twine.
"If the MPC decides to cut interest rates in February and April, it would remove cost pressure from households and business, because of the reduction of inflation against the background of rapidly rising wage rates," said Twine.
However, RMB's Walsh said that there was a risk to the rand if interest rates were cut too drastically. RMB's prediction is more conservative; there has been a tendency in the past for the MPC to cut interests more when inflation falls rapidly, said Walsh.
Johannesburg - Inflation could fall to as low as 6% in January and therefore back into government's inflation band - a development that could prompt a heavy cut in interest rates, economists have said.
"The inflation rate for January stands to decline massively from the 12.1% CPIX inflation rate for November to little over 6% for January," said Tony Twine, a senior economist for Econometrix, in a note to clients. CPIX, or the consumer price index excluding mortgage bonds, represents the cost of certain goods for the man in the street.
"Our prediction is 7% which is a dramatic fall in the inflation rate," said Kay Walsh, an economist at Rand Merchant Bank (RMB).
The South African Reserve Bank would then weigh into interest rates, she said. "We forecast that the MPC [monetary policy committee] will cut 50 basis points at every meeting until the end of the year."
Twine predicts that interest rates could be cut as much as 100 basis points at the MPC's next meeting, scheduled for February 11 and 12.
A 60% decline in the price of oil from its 2008 peak of about $147/barrel and technical changes to the way inflation is calculated in South Africa were behind the lower inflation expectations. Oil is trading at about $48/bbl.
Apart from the petrol price cut, lower food costs and the replacement of interest on home loans with owners' equivalent rent (the rental a homeowner forgoes by living in his house instead of renting it out) would present a convincing argument to the MPC to cut interest rates, said Econometrix in its Ecobulletin dated January 5.
As for the re-weighting of the CPI, it is a recurring statistical procedure. "The new weights would most likely result in a decline in the level of measured inflation," said Statistics SA on its website. For one, food will carry a smaller weight, while vehicles will carry a higher one.
Even though the January inflation rate will be unavailable to the MPC at its February meeting, it can make an accurate estimate to base its decision on, said Twine.
"If the MPC decides to cut interest rates in February and April, it would remove cost pressure from households and business, because of the reduction of inflation against the background of rapidly rising wage rates," said Twine.
However, RMB's Walsh said that there was a risk to the rand if interest rates were cut too drastically. RMB's prediction is more conservative; there has been a tendency in the past for the MPC to cut interests more when inflation falls rapidly, said Walsh.
Thursday, January 15, 2009
First home buyer loans surge as grants kick in
First home buyer loans surge as grants kick in
Peter Martin
January 15, 2009
EMERGENCY moves to boost first home owners' grants have paid off with a surge in first home buyer mortgage applications as professional investors desert the market.
- First home mortgages surge- Grant impact flowing through- Newly constructed houses popular
Figures for November, when the grants were doubled to $14,000 for buyers of existing houses and tripled to $21,000 for buyers of new houses, show that first home buyer applications surged almost 18 per cent, taking the first home buyer share of total loans to its highest point in seven years.
In addition, the size of a typical first home loan jumped $4700 to $269,200.
"This is an extremely positive first indication that the Government's moves are having an impact," said Commonwealth Bank economist James McIntyre. "Coupled with lower interest rates and improved affordability, first home buyer activity is likely to continue to improve further."
Loans to buy newly constructed houses jumped 9 per cent in November, far exceeding the jump of 1.1 per cent in the number of loans to buy existing houses.
It is the third month in a row in which the number of loans to buy houses climbed after eight consecutive declines.
It follows interest rate cuts in September, October and November — for a total drop of 2 per cent — which were followed by a further cut in December of 1 per cent.
Westpac is forecasting further cuts that will take the Reserve Bank's cash rate to 2.75 per cent from its present 4.25 per cent. This would push standard variable mortgage rates below 6 per cent for the first time since 1970.
Dun and Bradstreet forecasts released yesterday predict zero economic growth in Australia through 2009, an outcome that would pressure the Reserve Bank to push interest rates lower.
The international survey describes Australia's economy as "stagnant" in the September quarter "even before confidence in the global economy floundered in October 2008".
Demand for fixed-rate mortgages has all but dried up in anticipation of further interest rate cuts. Only 2.5 per cent of the mortgages issued in November were with fixed rates, down from 24 per cent in January.
Investment housing loans slumped a further 6 per cent in response to financial turmoil, sparking talk of a "rent squeeze" because there are fewer landlords.
"This is a real concern for the state of the private rental market," said Housing Industry Association chief executive Chris Lamont.
"Without affordable rental housing the number of households in rent stress could climb by a further 80,000."
Mr Lamont called for incentives to boost investment in affordable housing. He said that without them there would be an increase in the demand for public housing and potentially a further increase in homelessness.
Peter Martin
January 15, 2009
EMERGENCY moves to boost first home owners' grants have paid off with a surge in first home buyer mortgage applications as professional investors desert the market.
- First home mortgages surge- Grant impact flowing through- Newly constructed houses popular
Figures for November, when the grants were doubled to $14,000 for buyers of existing houses and tripled to $21,000 for buyers of new houses, show that first home buyer applications surged almost 18 per cent, taking the first home buyer share of total loans to its highest point in seven years.
In addition, the size of a typical first home loan jumped $4700 to $269,200.
"This is an extremely positive first indication that the Government's moves are having an impact," said Commonwealth Bank economist James McIntyre. "Coupled with lower interest rates and improved affordability, first home buyer activity is likely to continue to improve further."
Loans to buy newly constructed houses jumped 9 per cent in November, far exceeding the jump of 1.1 per cent in the number of loans to buy existing houses.
It is the third month in a row in which the number of loans to buy houses climbed after eight consecutive declines.
It follows interest rate cuts in September, October and November — for a total drop of 2 per cent — which were followed by a further cut in December of 1 per cent.
Westpac is forecasting further cuts that will take the Reserve Bank's cash rate to 2.75 per cent from its present 4.25 per cent. This would push standard variable mortgage rates below 6 per cent for the first time since 1970.
Dun and Bradstreet forecasts released yesterday predict zero economic growth in Australia through 2009, an outcome that would pressure the Reserve Bank to push interest rates lower.
The international survey describes Australia's economy as "stagnant" in the September quarter "even before confidence in the global economy floundered in October 2008".
Demand for fixed-rate mortgages has all but dried up in anticipation of further interest rate cuts. Only 2.5 per cent of the mortgages issued in November were with fixed rates, down from 24 per cent in January.
Investment housing loans slumped a further 6 per cent in response to financial turmoil, sparking talk of a "rent squeeze" because there are fewer landlords.
"This is a real concern for the state of the private rental market," said Housing Industry Association chief executive Chris Lamont.
"Without affordable rental housing the number of households in rent stress could climb by a further 80,000."
Mr Lamont called for incentives to boost investment in affordable housing. He said that without them there would be an increase in the demand for public housing and potentially a further increase in homelessness.
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