So where are the "green shoots"?
Date: 2009-11-26
Many economists are of the opinion that our economy is starting to show signs of a recovery. While there has been some activity in the property market, in comparison with the slow-down we experienced at the end of 2008 and well into 2009, this economy is going to need a lot more nourishment if these “green shoots” are to be anything more than saplings of false hopes. Let’s examine what awaits us…
Unemployment
Our official unemployment rate has increased in the last quarter to 24.5%, a whopping 4.19 million unemployed individuals. By March 2010 most infrastructure development for the Soccer World Cup must be completed. What is going to happen to all those people, contractors and businesses that are currently employed in this sector? Where are they going to find work beyond 2010?
The number of matriculants and graduates hoping to enter the job market in the same year will further contribute to these horrific unemployment statistics. Please note that temporary posts for volunteers for the 2010 World Cup don’t constitute sustainable employment.
Which leads us to the question – who will be buying property? Or shall we rephrase this – who will be forced to sell?
Eskom’s effect on inflation
We cannot deny that the proposed 45% electricity tariff hike over the next 3 years is going to negatively affect our pockets in more ways than in just having to pay for power. It will cost more to produce, store and to put food on our shelves. How can this not affect food price inflation?
Gill Marcus has her work cut out for her. Is she also going to follow her predecessor’s eagerness to target inflation by increasing the interest rates, even when the cause of inflation has nothing to do with over-spending, thereby further reducing the available disposable income of every household?
Increased interest rates combined with lower disposable income equates to lower bond affordability. First-time homebuyers will find it hard to enter the market and will have to settle for less than they have enjoyed while living at home. Current home, owners thinking of buying a new property, may find that they qualify for a lower bond than they currently have.
No tax cuts expected for 2010
With a shortfall of R60 billion in tax collection expected for the 2009/2010 fiscal year, Pravin Gordhan will not be very generous when he delivers his first annual budget speech next year.
The ANC had a very optimistic manifesto prior to the 2009 elections. However, to date they haven’t been able to deliver due to the recession aftermath. If they are to rectify this situation, they will have to recoup the shortfall and we will have to foot the bill.
Lack of funding
A couple of months ago, we experience a glimmer of hope when the banks started offering 100% bonds again. But the reality soon hit home, when consumers realized that if they wanted to avail of such bonds, they must be prepared to pay the price.
100% bonds are assessed very conservatively and the interest rates are unfavourably higher than prime. Furthermore home buyers need have to 100% clear credit records and a high level of affordability to qualify for such bonds.
The banks are not oblivious to the economic threats we’re facing. They are fully aware that things are going to get tougher before they get better. Hence, they are behaving very conservatively and pulling their purse strings tighter.
The property market can only be stimulated if capital is made available. Lack of funds will keep it suppressed.
“A single swallow doesn’t make a summer” and a few property sales don’t construe an upward trend in the market. While consumers remain subjected to inflationary pressures, unemployment continues to rise and the banks remain tight-fisted, the property market will suffer the repercussions thereof.
Doom and gloom? Not at all! We just need to understand the market we’re in and behave accordingly. Sellers, don’t overprice your properties if you are serious about selling. Buyers, do your homework and know that you’re able to qualify for finance. Investors, invest for long-term benefits rather than an immediate profit, and even more important, keep cash available for opportunities, as there are still more to come.