4495e1322f9e4c2ea4c3901c8d5af5ad

Monday 17 September 2007

Property Review - South Africa




South Africa - The Rainbow Nation

Fast Facts:

- Africa 's Biggest Economy.
- The World's largest producer and exporter of Gold & Platinum.
- Capital = Pretoria
- Population = 47 million
- Currency = Rand

Economic Review

If you're a Private Investor sitting in New York / London, and you want to look at the 'possibility' of investing in Africa, where would you start? (I say possibility, because many people still see Africa as a basket case, and even the thought of investing there would warrant you a trip to the hospital and getting intimate with a straight jacket !!)

Normally, you would make a list of all the countries in Africa, and start from top to bottom.........but in the case of Africa, you would have start from bottom to top :)

South Africa (yes, the country and NOT the region) has since 1994 flourished under majority rule and is set to capitalise on this momentum for future generations.

Here's why:
  1. South Africa is ranked 24th in the World in terms of GDP , corrected for purchasing power parity.
  2. The Johannesburg Stock Exchange (JSE) ranks among the top 20 in the World.
  3. The South African Rand (ZAR) is the World's most actively-traded emerging market currency, and was the best-performing currency against the United States Dollar (USD) between 2002 and 2005.
  4. South Africa is also Africa's largest Energy Producer and Consumer.

So enough with the 'Colouring in the pretty Pictures and forgetting about the Reality' bit........let's get on with the hard facts, as Africa isn't called 'The Dark Continent' for nothing:

  1. South Africa has one of the highest rates of income inequality in the world.
  2. Unemployment sits at approximately 25%.
  3. The Crime Rate is one of the Highest in the World, but it is the increase of violent crime that is the biggest worry.
  4. With the crumbling of the Zimbabwean economy, refugees are streaming into South Africa with an estimated 2 million Zimbabweans already residing in South Africa.

So you may say, 'Please STOP' !!! With these statistics why would anyone in their right mind even have the notion of even looking at South Africa as an 'Investment Hotspot'???

I'll tell you why, and I promise to make it short........but Sweet :

1. The emergence of a black middle-class known as 'Black Diamonds'.

2. The 2010 Soccer World Cup.

3. The ratio of Disposable Income to Household Debt which is still only at 76%.

4. 93% of Land Claims have been completed.

5. Interest Rates are still at 25 year lows from a height of 25% in 1998.

Without trying to illustrate every point made above, I have focused on the correlation between interest rates and inflation below. And without further ado, let the pictures to the talking............ :)

Tito Mboweni (The South African Reserve Bank Governor) implements a monetary policy within an inflation targeting framework.......so what do these fancy words mean??? :

  • In 'Layman's Terms - If inflation goes up, then interest rates go up.
  • If inflation goes down, then interest rates go down.

So, to illustrate this, have a look at what the graphs tell us below:




So how do these graphs above explain the growth experienced in the Property Market?

  • - If inflation goes up, interest rates go up and house price growth slows.

  • - If inflation goes down, interest rates go down and house price growth increases.








Property Market Review

So, as mentioned in the Economic Review, there are 5 major factors that make South Africa a great place for property investment..........but what exactly are these 5 factors and how will they affect the Property Market??

Let's discuss these them one by one:

1. 'Black Diamonds' - An emerging black middle-class

- Of the 28,8m adult South African population, 21,9m are of black origin:

  • Of those, 2m fall into the category called "Black Diamonds" - Black Diamonds are a group characterised by a certain amount of wealth, education and other middle-class determining factors.
  • Black diamonds make up 10 percent of black South Africans, but are responsible for 43 % of black consumer buying power, amounting to a value of approximately R130-billion.
  • Their growth has been recorded at 30% over the space of the last year.

2. 2010 Soccer World Cup (SWC) - The Biggest Event in the World

- Estimated 450 000 soccer fans are expected to visit South Africa for the SWC .

  • These fans will spend in excess of R30 billion while enjoying the tournament.
  • This 'cash injection' will push the economic growth rate up to 6%.
  • 150 000 jobs will be created during the tournament.
  • R5 billion for spending on stadiums (Renovate existing and New-built)
  • R24 billion spending on Gautrain linking Pretoria , Johannesburg and OR Tambo International Airport.

3. 'The Ratio' - Disposable Income to Household Debt

Disposable income is the amount that you're left with after all taxes have been paid.

Household Debt is things such as mortgage / vehicle finance payments, credit cards and Loans.

  1. South Africa 's disposable income to household debt is 76%.
  2. So for every R1 that you make after taxes have been paid, you have to pay 76c toward payments and you are therefore left with 24c.

Now you think, WOW, 'For every R1 I earn I have to fork out 76c before I can start saving'??? (that's if you're the saving type :) That's rediculously high !! So, let's compare it to some other countries:

- Germany = 115%

- Japan = 140%

- UK = 142%

- Australia = 171% !!

As you can see, South Africa 's ratio pales in comparison to other countries around the World !!

4. 'The Zimbabwe Scenario' - To take or not to grab the Land

- 97% of South African land claims have been settled, thereby leaving the issue of 'Zimbabwe Land Grabs', becoming a reality in South Africa, as very unlikely.

5. 'The Interest Rate' - Currently at a 25 year low

  • From a record interest rate of 25% in 1998, South Africa is experiencing 25 year low interest rates.
  • The current Repo Rate (the rate at which the SA Reserve Bank loans money to Commercial banks) is currently at 10% while the Prime Rate (the rate at which Commercial Banks loan to the public) is at 13.5%
  • With inflation being kept in the monetary policy range of 3-6%, any significant increases seem unlikely.

Just to give yourself a little bit of time to digest all the 'heavy' information above, let's look at some pictures !!

Look at the House Prices to Income graph below:













        As you can see, compared to the UK , Australia and USA, South Africa's house prices are still very much under-valued.

        • And coming from such a low base regarding property growth, is this where the party ends !! To quote the song from BTO.........'You aint seen nothing yet' :)

        Conclusion

        As South Africa moves into almost 15 years after the end of 'Apartheid', there are signs that the 'Lighthouse of Africa' still had a far way to go in order to be competitive on the world stage.

        But with onset of a new era, with the new black-middle class, 2010 Soccer World Cup, comparatively low Disposable Income-Household Debt ratio, the 'Zimbabwe non-issue' and low interest rates at 25 year lows.........things are definitely on the up for the 'Rainbow Nation'.

        (Sources: http://www.globalpropertyguide.com/ , http://www.wikipedia.org/ Reuters, http://www.absa.co.za/ & Daily Telegraph)

        25 comments:

        Anonymous said...

        Dear Sir/Madam,

        I notice from your blog that you post regarding South African property. I work for property showrooms and we are currently producing many articles, statistical studies, International Property News and other resources concerning the property investment industry. We also have over 40,000 overseas property listings from all over the world.

        I would like to invite you to use, review or link to any of the resources you see on our site when composing future blog submissions.

        regards

        Carl Milton
        Propertyshowrooms.com

        Unknown said...

        Carl

        Thanks for your comment and the invite to info on your website :)

        I will make a point of it to see if I can use any information on your website.

        Also feel free to refer clients to my BLOG or myself if more info is needed regarding the SA property market.

        Regards
        Eric

        IPINLive said...

        Obviously its been a while since this post was written, but how are South African property investments performing now after the world cup and the recession? Has the World Cup generated the influx of investment everyone was looking for? Some countries have done ok in the past after similar events, it would be interesting to see an update on South Africa.

        http://www.ipinglobal.com/ipin-live/blog/258208/world-cup-2010-investment-potential-own-goal

        Unknown said...

        @ IPIN

        Thanks for the comment.

        You are right that lots has changed since the World Cup. I think the main advantage has been the perception that South Africa is a country worth looking at for investment rather than another African basket case.

        I will be doing a follow up on where the South African market currently stands and what the prospects are for the future.

        Keep well
        Eric

        Anonymous said...

        whoah this blog is fantastіc i liκe ѕtudyіng your pοѕtѕ.
        Stay up the great wοrk! You know, lotѕ of people
        are looking around foг thiѕ information, you can aid them greatly.


        Also visit my web site: consolidation loans unsecured

        Anonymous said...

        Μy bгother suggested I would possibly like this ωeb
        sitе. He was оnce totally right. Тhis ѕubmiѕsion tгuly madе my day.
        You cann't consider just how a lot time I had spent for this info! Thank you!

        Take a look at my web site ... Veteranjournal.Com

        Anonymous said...

        Juѕt wish to say your artісle is as astonіshing.
        Thе сlarity in уοur post is ѕimply
        great anԁ i could ѕuppοsе you're a professional on this subject. Well along with your permission allow me to grab your feed to keep updated with approaching post. Thanks 1,000,000 and please continue the enjoyable work.

        Take a look at my webpage: unsecured small loans

        Anonymous said...

        I could not refrain from commenting. Perfeсtlу ωrittеn!


        My weblog; loans

        Anonymous said...

        There's certainly a lot to learn about this issue. I love all the points you've made.


        Take a look at my web page; Dipcin.De

        Anonymous said...

        I alwауѕ used to study paragraph іn news
        paрers but now aѕ I am a uѕer of іnternet ѕo from nοw І am
        using net fоr artіcles, thanks to wеb.


        Μy ѕite; lose weight
        Also see my webpage: hcg injection diet

        Anonymous said...

        Hurrah! At last I got а ωеb-site from whеrе I know how
        tо in faсt get useful information гegaгding my studу and knowledge.


        My blog post: easy fast cash loans

        Anonymous said...

        Can you tell us more about this? Ι'd care to find out some additional information.

        my web blog personal loans

        Anonymous said...

        Don't mind browsing articles such as this when its raining like today.

        my blog post: fast cash personal loan

        Anonymous said...

        I know lots of реоplе who this artіcle аpplies to.


        Checκ out my webpаge :: fast payout loans

        Anonymous said...

        Incredible! This blog looks just like my old one!
        It's on a completely different topic but it has pretty much the same page layout and design. Excellent choice of colors!

        Also visit my site ... vintage clothing

        Anonymous said...

        Not sure іf I ѕhοuld get a book on this myself, οr јust геad ѕеveral poѕts.
        Is there sο much to it?

        Feel free tо surf to my homеpage - fast easy cash loans

        Anonymous said...

        There's always a new problem waiting to be solved as soon as you've
        solved the firѕt. Never dοne huh!

        Visit my blog ρost fast cash advance

        Anonymous said...

        Until a fгienԁ told me abοut this I hadn't even thought it possible. Seems as though I'm
        behind on the mаtter..

        My page: bad credit personal loans

        Anonymous said...

        Dont belief I κnow ωot u r on bout аll
        this 2 b totaly honeѕt. Myt have to go
        elswhere to gеt it.

        My webρage fast payday cash loan

        Anonymous said...

        Yοu tоuch οn thіѕ ωay better than I myself could -
        pгobаbly why I do not haνe a thriving blog!



        Have a look at mу blog: fast cash loan today

        Anonymous said...

        Pеrfect introduction, made me read all of the poѕt.
        Mіne always ѕeem tο waffle on, youгs is nіce and punсhy.


        Heгe is mу site personal loans

        Anonymous said...

        If yοu аre goіng to do it as well then I'm not doing it! No point doing the same thing again.

        My blog - Fast payday loan

        Anonymous said...

        Yeah, Wіll ԁo - I'll get them on tomorrow, when I've got a couρle of hοurѕ
        free.

        Alѕo visit my ρage: cheap personal loans

        Anonymous said...

        You musn't worry. Get yourself a glass of milk when you go home, go for a bath and let go.

        Here is my web site fast cash loans online uk

        Anonymous said...

        Need ѕome extrа stuff on this - any opinions
        covering anything I cоuld reаd or what forums I might joіn?


        Take а look at my ωeb-site fast cash today