Financial pressure as rentals improve

At least 25% of houses sold in the second quarter of this year were the result of financial pressure on the household. According to John Loos, property strategist at FNB Home Loans, financial stress and pessimism about the future had contributed to the rising stock levels for estate agents.

He says that in the first quarter, low interest rates had been cited by estate agents as a key factor that influenced the outlook for home sales but in the second quarter this changed and houses are available on the market because the owners want to reduce their monthly costs.

Loos says that when interest rates rise – expected later this year or early next year – the financial strain will be even greater for homeowners who are already hard-pressed to meet their monthly commitments.

He says that regional property demand tends to be seasonal and that generally the outlook among estate agents remains rather low in winter.

In a separate development, Saul Geffen chief executive of ooba, one of the country’s mortgage originators, says that banks are continuing to relax their lending criteria and this is having an impact on sales figures.

He says the initial decline ratio fell by 5,8% in the second quarter of the year but remained high at 47,1%.

Loos says that fewer agents see the low interest rates as being a significant factor in boosting house sales and emphasised that agents point out that there has been a significant rise in the number of people seeking to downscale their living costs.

Meanwhile credit bureau and property rental management company, TPN says that 81% of tenants are currently in good standing with their landlords. According to TPN this is a sign that residential tenants are managing their credit better than in previous years.

The rental price bracket of between R3k and R7k proved to be performing particularly well with 84% of tenants in good standing and paying their rent on time.

However, in the price bracket below R3k as well as those above R12k had deteriorated and it says that this is further evidence of the financial strains that are currently facing many consumers. Only 75% of tenants living in homes costing less that R3k a month were in good standing while the percentage of paying more than R12k had fallen to 74%.

Non-payment of rental in both these brackets was 14%. Furthermore in the R12k-plus bracket only 67% of people paid on time while those who pay late was also at 14%.

It says the residential property markets in the Eastern and Western Cape continue to out-perform the markets in Gauteng and KwaZulu-Natal.

Inflation up but interest rates steady

The consumer inflation rate was higher than predicted, rising to 4,6% in May and up from 4,2% in April but economists have not yet revised predictions on a hike in interest rates by the Monetary Policy Committee of the South African Reserve Bank.

SARB’s repo rate was cut to just 5,5% in November last year, dropping interest rates for consumers to a record low of 9%. A spike in interest rates will place considerable pressure on property owners, as many of them try to downscale their costs in orderto meet their monthly commitments.

Elna Moolman, an economist at BJM Renaissance, says that the latest data is unlikely to mean that the interest rates will start to rise earlier than predicted even though the SARB has revised its estimates for higher inflation over the coming months.

The figures indicate that the inflation rate will remain within the Bank’s target range of between 3% and 6% for the rest of this year but will increase to about 6,3% early next year when rates are expected to be hiked.

The spike in inflation rates has been prompted by higher-than-expected increases in food prices, which are up 1,7% month-on-month. Food prices have a weighting of about 15% in the price basket used to calculate the average inflation rate and these rose by 6,3% year-on-year.

Moolman says that adverse weather conditions prevailing throughout the country, coupled with a fall in output from the agricultural sector were contributing to higher food prices.

Higher electricity prices, along with a sharp increase in fuel prices had also contributed to the spike in the inflation rate. Electricity prices have risen by 19% in May compared with a year ago.

Buyers moving South

Cape residential property is about 25 percent to 30 percent more expensive than residential property in Gauteng; a fact, says Anton du Plessis, CEO of Vineyard Estates, that does not deter many Gauteng buyers from moving south, even though they may have to downscale quite appreciably to make such a move possible।

"Gauteng currently," said du Plessis recently on SABC’s Expresso Morning Show, "offers better value for money on plot sizes, floor areas and finishes but, of course, Cape Town has scenery, the sea, winelands and much else. If it is a lifestyle rather than financial reward that is now your priority, this is where you will probably find it."

Most upcountry buyers, he said, arrive in Cape Town with a set budget in mind. Once they discover that they cannot buy the lifestyle that they want, at the price they had anticipated, those buyers who can afford to raise their sights often do so.

"More often than not, a buyer from Gauteng who indicates a maximum spend of, say, R4-million initially will end up buying for R5-million and more."

The housing market in and around Johannesburg, said du Plessis, still has ample space at its disposal. Even in the built-up areas there is still huge scope for densification and redevelopment and whether the buyer looks north, south, east or west, land for expansion is not hard to find. In many Gauteng suburbs the problem lies not in a lack of subdivisions, but in the provision of services to accommodate the additional load.

"By contrast, the Cape Peninsula’s middle class suburbs have been crammed into the limited space between the mountain and the M5 freeway on the east and the mountain and the sea in most other areas.

"As the demand, however, is still strong, and the supply relatively limited, prices will inevitably be far higher than in equivalent sized homes in and around Johannesburg.

"Having said that," du Plessis added, "it is currently very much a buyers’ market and where sellers are distressed good properties can be snapped up for up to 25 percent less than their real value."

"This will not last forever. There are now signs that by the second half of 2012 (as I have said previously) today’s prices could look very low indeed."

South African Property: Rent or Buy?

The news that South Africa has now been included in the BRIC group (Brazil, Russia, India and China) can only mean good news for property investment.

According to Maite Nkoana-Mashabane, South Africa’s Minister of International Relations and Co-operation, the inclusion, “legitimises South Africa as a future global power and as an investable country - bolstering its position as Africa’s gateway and champion.”

According to the Sage Property Report from Standard Bank in September 2010, “confidence in the South African property market is returning”.

This is confirmed by the 8.3 percent year-on-year growth rate in the median property prices in August and 7.3 percent year-on-year in July and has given rise to the prediction that the average nominal growth will be around 6 percent for the year.

So is this the time to buy? Herman Slabbert, from Ronnie Matthews Estates in Cape Town says, “The answer whether to buy or lease depends on the profile of the buyer and to what extent current market conditions dictate or influence the choice (or limit the options).

“For an investor the question may be to either invest in the share market or property or both, but after the good bull run of worldwide equity markets the past year, share analysts warn of a dangerously over-bought market and that investors should expect a medium to large correction in the near future.

Rent

Buying is naturally the preferred choice for someone or a couple starting out, but the credit crunch and resulting stricter lending criteria of the banks makes it difficult to get loans, unless you can put down a substantial deposit.

The irony for the first time home buyer is that interest rates are at their lowest level in 30 years and home prices are at very attractive levels compared to the property bubble before 2008.

One strategy proposed is to rent and then invest or save the difference between the rental payment and the monthly bond amount one would have expected to pay, in the share market. These ‘savings’ though must to be invested in the stock market. In 10 to 12 years there should be enough accumulated capital to buy a house.

Buy

Michael Bauer, General Manager of property management company IHFM,says, “The biggest resistance to buying versus renting is the mental block caused by short-term thinking. People ask themselves why they should buy when they can rent for 30 to 40 percent less than their monthly bond repayments. They are also not responsible for repairs and maintenance and can move on whenever they feel like it.

“However, the fact is that monthly rental will generally rise by 8 to 10 percent per year and by the time the property owner has paid off the bond (are debt free) the rental will be about ten times more than it was 20 years earlier when they decided to buy not rent.

“In contrast, property owners will find that their bond repayments will no longer be a major burden and will probably be less than 15 percent of their gross salary. In essence, if you pay a deposit of 20 to 25 percent on the property, it makes sense to anybody to buy.

“If you compare for example a R400,000 bond issued at an interest rate of 11 percent, the property owner would pay around R990,000 in capital and interest over 20 years, but would own an asset worth R1.06 million.

Bauer continues, “The tenant starting with a rent of R2500 a month (subject to annual increases) would at the end of 20 years find that his total rent payments have been about R1.7m. However, there would be no asset to show for his outlay.

“Rental escalations and capital growth are usually far above annual adjustments to income so it will become less and less affordable to rent in future if you continue living in an area of your choice. When you retire of course and your income is reduced by 30 to 40 percent, rental may be prohibitively expensive.

“For the buyer or investor who qualifies financially to buy, there are many options available in the market. Remember it is still is a buyer’s market coupled with the low interest rates, notwithstanding mediocre capital appreciation expectations. For the shrewd/smart investor who knows the market and the product there are opportunities in the buy to let market.”

Buy to let

Slabbert says, “Recent activity shows a positive sentiment in the buy-to-let market, which is an important segment of property investment.

“According to a report in the Financial Times (in the UK), banks in London have for the first time started to give loan packages, one of up to 85 percent of the value of the property. (Coincidentally it is a subsidiary bank of Investec, the South African bank).

“However, one dilemma for the South African buy-to-let investor is stock. Since 2008 banks and other financial institutions have ceased to provide funding for new developments, resulting in supply constraints – limitations on the ability to deliver new developments. However, the supply constraint also has benefits.

“It must also be remembered,” says Slabbert, “that a market or area where supply is constrained generally will have higher rent levels, greater rent growth and higher capital values.

“The investment strategy focusing on supply constrained areas could potentially provide more durable income and stronger capital appreciation.

“As an example, one can look at the Atlantic Seaboard in Cape Town and then at a specific area like Camps Bay/Clifton area which is considered the most expensive real estate in South Africa has a legal as well as geographic supply constraint.

“In essence local government zoning for development is restricted and geographically there simply is not any scope for extending this area.

“Lastly, local opposition to development is fierce; the Camps Bay rates payer association plays an activist role to monitor any proposed developments and take action where necessary,” Slabbert concludes.

Interest rates, investor confidence in a stable economy, high growth prospects together with some incredible bargains in the real estate market make this a good time to buy if you are able to and reap the rewards over the long term.

Are banks 'killing' the Property Market?

Has it ever struck you just how many people are property experts when you mention that you are thinking of buying or selling a property?

These well-meaning advisers – with opinions that are certainly influenced more by hearsay than knowledge – will say that now is not the time to be involved in the property sector and, as a rule of thumb, they think they’re right.

People with a little more knowledge, like estate agents, will say it’s an excellent time to buy but, if you want to sell, make sure that you’ve priced your house correctly, particularly if it falls into the upper price brackets.

Do estate agents give you a true value? Never. They give you a ‘gut-instinct’ based value that is determined by what you want and what they think they can get. If the house is slow to move, then the price is too high. It’s a pathetic basis for determining a true value.

Bankers (responsible for lending the money) often won’t say a word – except among friends. And the sad fact of the matter is that bankers are the ones who dictate the state of the property market. If they lend money, sales boom. If they don’t sales dwindle.

In years gone by, when the cyclical swings were not as great as they appear to be today, banks would look for value in a property and would grant a bond based on the value that they attributed to it.

You would expect that pattern to be cast in stone and that, today, if you were to go to four different banks, you would get a very similar valuation from all four of them.

And that’s where you’d be so wrong. Different banks have different criteria and they use different yardsticks to adjudicate value. Ask for a value from a banker and you’ll get four very different ones.

This, naturally enough, makes it incredibly difficult for property owners and for estate agents who, for instance, put in an application for a bond (based on a fair purchase price) to all four of the banks and find that some banks come back and say there is “insufficient value” in the property to the grant the bond amount applied for.

The more expensive the home, the greater variation there is. And much of that valuation process appears to be purely subjective rather than scientific.

Question a bank about the details of why the value is so low and they will come up with all sorts of subjective reasons: “It’s not the right property to be buying in this market” or “The property is over-priced for the area” or “The owners have over-capitalised and want too much money” or the “The asking price is simply too high for the home” or, mostly importantly “We won’t grant a loan of that size against that property”..

Forget the fact that the buyer has a right to decide what amount he or she is prepared to pay for the property in question. Forget the fact that the bank won’t pay a penny of the excessively exorbitant interest rates that are calculated over the next 20 or 25 years. That’s the buyer’s responsibility.

Just remember banks borrow money from the Reserve Bank at 5,5% and charge the money they’ve borrowed at prime of 9% so banks make 3,5% gratis before lending a bean. It’s iniquitous.

If that’s not bad enough then we have the other factor: banks can now stipulate what a house is worth by making a snap, subjective and often unfair value judgment.

I watched one of these valuers at work on the property that I currently rent. He had a measuring tape (on wheels to calculate the perimeter of the house) that he wheeled past the plants (not next to the house) to give him a rough idea of the outer boundary.

Then he walked through the house, taking no more than five minutes to survey the lot. Then he swaggered through to my office demanding that I drop what I’m doing and immediately let him out.

If he was here for five minutes then that was a lot.

I went outside with him and waited next to his run-down white jalopy while he searched for an address in a map book.

After I had spent more time looking at him than he had spent looking at my house, I tapped on his window and said, rather sharply, “Listen, bud, I’m busy so why don’t you leave find directions somewhere else rather than just wasting my time.”

He drove away mumbling – and I didn’t give a fig.

His few minutes here resulted in a decision worth more than a million rand. It’s totally absurd and certainly a deeply unprofessional way to determine the value of a property.

His visit was typical of all those others I have experienced when valuators come to value a house. In the course of my lifetime I have bought and sold more than 20 properties and I have never had a different experience from a bank’s valuation man.

So I was hardly surprised to read the comments from Ronald Ennik, an executive director of Leapfrog Property Group who says that banks are damaging the property market by continuing to value properties “too conservatively”.

He’s quite right. I would take it further than Ennik did: I would say that banks are killing the property market and they seem to be doing so with a smile on their corporate faces and it makes me sick.

Apart from making it really hard to qualify for a bond, the banks are now deciding the value of property and what it’s worth. How unfair is that?

Homebuyers’ dreams are smashed by a cretin who spends less than ten minutes looking at a property. The same cretin who cannot even read directions in a map book.

And the bank he represents accepts his word as gospel – the final say on what a property is worth. It’s bizarre.

Surely there must be a less subjective way of determining property values?

Professional land valuers (like my cousin) will tell you that there is a lot more that goes into compiling an accurate and realistic property value than just wandering around with a tape measure and a pair of reasonable eyes.

And it is these professionals that should be doing the valuations for banks and it is their figures that should be the basis for any bond regardless of which bank it is that’s granting the money.

Property values must surely be based on measurable criteria and not on value judgments. Value judgments are not a valuation, they’re a guess. And I wish that Standard, Absa, Nedbank and FNB would remember that.

And then stick to lending money based on the risk profile of the individual and not on whether they approve of the purchase he or she is making.

I also wish that Capitec and African Bank (and others) would step into the market and shake it up completely by adopting a more fair and reasonable approach.

Because as things go mortgage-lending banks are just a very motley bunch.

*Hartdegen writes a regular column for Property24.com. The content of his columns constitutes his personal opinion and doesn’t pretend to be facts or advice.

Home Buyers to spend HALF of take-home pay on their Mortgage

Economists said there is ‘no doubt’ that Bank of England interest rates will return to around 5 per cent - possibly even higher - from their current historic low of just 0.5 per cent.

If the current profit margins are maintained, it means mortgage rates will be pushed up to 8 per cent, according to Capital Economics.

It would see mortgage payments at the start of a new mortgage increase from 34 per cent of average take-home pay to 51 per cent for those buying a new home, it said.

It equates to more than £12,000 being spend on their annual mortgage repayments, as the figures are based on average take-pay home of £23,800 - or a gross salary of £31,500.

For existing borrowers – including those remortgaging – it will reach a record 42 per cent or £10,000.

Paul Diggle, an economist at Capital Economics, said: “The record level of outstanding mortgage debt relative to earnings suggests that existing mortgage borrowers would fare even worse relative to historical norms.

“And with the share of outstanding mortgages on variable rates of interest the highest in at least a decade, there is good reason to think that a sustained tightening in monetary policy would be passed on to borrowers quickly and in full.

“Were average mortgage interest rates for existing borrowers to reach 8 per cent, their average mortgage payments would rise to an all-time high of 42 per cent of take-home pay.

“Yet the additional interest rate risk that variable rates expose borrowers to can be overstated. The fact that most fixed rate periods in the UK are just two or three years long means that even most borrowers on fixed rates are exposed to a high degree of interest rate risk.”

However, he added the Bank Rate is likely to remain at its current level during this year and next.

“If that happens, it would no doubt add to the pressures on mortgage borrowers, but the house price correction that we expect over the coming years will be driven largely by the deteriorating labour market and the sheer unaffordability of housing,” he said.

It comes amid a rise in the number of people being evicted from their homes as lenders warn they will not be as tolerant about borrowers failing to keep up with their mortgage payments.

Earlier this month, the Council of Mortgage Lenders said 9,100 people had their homes repossessed during the first three months of 2011, up from 7,900 during the last three months of last year.

During the recession, lenders were told by the Government to use repossession only as last resort. But as the Government’s austerity measures take hold amid possible rises in interest rates, more home owners are expected to fail behind in their loan repayments.

Generation X leads property recovery

Generation X will lead the property market to recovery in the US and in SA. A more positive sentiment has returned to the market in the US as well as in South Africa, especially among professionals who can afford to take advantage of the current market conditions.

A report by an American company, John Burns Real Estate Consulting, revealed that of the 10 000 buyers and potential buyers they surveyed in 27 metro areas throughout the US, between 85% and 89% said that they felt now was a good time to buy a home and most felt optimistic about a new home purchase.

There has been a marked increase in activity in both the local and international property markets in the first quarter of 2011; however recovery in the global market continues to be slow as countries are experiencing different rates of recovery depending on the various economic policies they have in place.

In the US market, for example, the unemployment rate has reduced and the US stock exchange has rebounded massively since 2009. Positive property statistics have been reported with an increase in transaction volumes, especially in existing home sales and there continues to be a strong demand for distressed properties.

As with the case in the US, South Africans are currently seeing more realistic property pricing and are experiencing the lowest interest rate in the last 38 years. This has had an influence on the market and has contributed positively to the increase in property transactions. Added to this, realistic house prices and interest rates have also opened up the property market to people who could not afford to buy a house five years ago.

Around the world the Generation X population, which consists of adults between the ages of 31 and 45 who are generally well established in their careers, are looking to get their foot in the property-ownership door. According to real estate experts, these potential property buyers are most likely to decide that given the current market conditions, now is a good time to purchase a property. The Generation X market segment makes up 32% of the property-buying population in the US. While they are not the largest population-buying group, they are definitely the most active. In contrast Baby Boomers in the US, who make up 41% of the property-buying population, are still trying to make up losses in their savings and investments due to the recession conditions of the last few years and are more cautious in their buying decisions.

Statistically the population demographic in South Africa looks slightly different; Baby Boomers make up a much smaller percentage of the population than Generation X. Between the years 1950 and 1965 there were 13,5 million births in South Africa (Baby Boomers) compared with the 18,74 million births (Generation X) between 1965 and 1985.

However, when it comes to buying population, South Africa has many similarities to the US. According to John Loos, FNB Home Loan Strategist, the most noticeable increase in the property market buying share in South Africa was among the Generation X group who made up 28,1% of the total purchases in the first quarter of this year. This is compared to the Baby Boomers whose buying share increased to 21.17% of the total purchases in the first quarter of this year.

Younger buyers have also made their mark on the property market recently and it seems that Generation Y will not be outdone by their predecessors. Loos says that information from Deeds Office data on individual transactions revealed that in the last four quarters, 15.3% of first time buyers were under the age of 30.

Overall market confidence has improved and we have seen a higher number of first time buyers in the first quarter of 2011 than during the last quarter of 2010. It is clear that it is the younger professionals who are leading the property market recovery both in South Africa and abroad. Although we may still have an interesting road ahead of us in terms of full market recovery, things are definitely looking up for property markets around the world.

*Peter Gilmour is the Chairman of RE/MAX of Southern Africa

UK's most expensive flat sold for £135.4 million

The UK’s most expensive flat has been sold in London for £135.4 m.

Prices for a one-bedroom apartment at One Hyde Park start at £6 million Photo: BLOOMBERG

The buyer of “Flat a” at the One Hyde Park development is understood to be a Ukrainian who purchased the penthouse in cash in 2007.

The new owner is thought to be spending up to £60 million on interior work after receiving the apartment with bare walls and no amenities.

The Ukrainian used an offshore company called Water Property Holdings to buy the flat, which covers the top three floors in the Richard Rogers designed complex next to Knightsbridge.

The complex, built by a development group led by the Candy brothers, the upmarket property investors, has become the most expensive residential development with almost £1bn of sales transacted across 45 apartments.

The scheme finished in January and almost all the apartments have been bought through offshore trusts.The law firm used in the purchase is based in Russia and Ukraine. There is no mortgage linked to the property and the identity of the buyer is covered by confidentiality clauses with Project Grande (Guernsey) Limited, the developer.

Home loans - applications up 36%

Home loan applications last month reached their highest level in three years according to mortgage originator ooba. It says that home loan applications in March were up by 36% compared to the average monthly figure for last year.

However, ooba points out that home loan applications remained depressed and were almost 40% lower than those recorded at the peak of the property boom in 2007.

According to ooba, the average price of houses increased from R850 864 last year to 860 492 in the first quarter of this year.

Saul Geffen, ooba’s chief executive says that the results are both surprising and positive because the property market had been floundering for at least two years.

He says that house prices were not expected to rise this year so the increase recorded in the first quarter went against forecasts made by property analysts.

However, Geffen says that it will be necessary to wait until next month to see if the spike in loan applications is a sign that the property market is improving.

Geffen says that the value of home loans granted in March was the highest since October 2008 and the higher value of home loan applications is expected to continue for the rest of this year.

He says that the increase in the number of applications for a home loan may be a result of lower interest rates that make buying a property now particularly attractive for people in the affordable housing sector.

The average size of loans granted by the bank was 7% higher in the first quarter of this year at R725 973 compared with the same period last year.

The average deposit as a percentage of the purchase price dropped by 23,9% to 15,6% equivalent to R134 519.

The average deposit as a percentage of purchase price was 19,9% in February and 14,7% in January.

SA recovery still on track despite Global Shocks

South African consumers can find some reassurance in the fact that, despite the serious shocks seen around the globe in the first quarter of the year, the economic recovery underway in South Africa is still on track and growth prospects remain positive.

We have experienced some unexpectedly serious shocks in recent months, such as the tragic earthquake and tsunami in Japan and political strife in the Middle East and North Africa, exacerbated by rising oil and food prices, further debt bailouts in Europe and concerns over tightening fiscal and monetary policies in many countries. All of these have negative consequences for economic growth, and have combined to spark uncertainty around the consequences for the global economic recovery, and in turn on South Africa’s own recovery. on the positive side, we believe that none of these threats has so far been substantial enough to derail South Africa’s growth path this year. In fact, we have kept our GDP growth forecast for 2011 unchanged at 3.7%.

Although we have not yet seen all of the negative fallout from the economic and nuclear disaster in Japan, that country contributes only 9% of global GDP, 4.5% of world imports and 5% of world exports, making it too small to cause more than a temporary “blip” in the global economic upturn.

Although it is the world’s third largest economy, we don’t see Japan as a ‘game-changer’ for the global economy,” he observes. “Its impact is likely to be relatively limited, and in a few months’ time we should start to see a positive growth momentum generated by rebuilding there.

Meanwhile, the political strife in the Middle East and North Africa (MENA) has important implications for emerging market governments everywhere.

The countries so far hit by the unrest – like Tunisia, Egypt, Libya, Bahrain and Syria, among others – are too small to slow down the global economic rebound. However, should the turmoil spread further in the Middle East and disrupt oil supplies, serious consequences could be felt. For now, we know that poverty and inequality is rife in many emerging markets. Other emerging market governments (especially autocracies and poorly performing democracies) could learn some valuable economic policy lessons from the uprisings to date. These include:

• - Making growth, employment, poverty reduction and wealth redistribution even higher priorities;
• - Placing special emphasis on price stability and improving efficiency in government delivery;
• - Boosting food production to improve self-sufficiency; and
• - From a global perspective, ensuring fast growth is not limited to China and India.

Turning to China, the Chinese government is “very much aware” of the impact the MENA uprisings could have on its own people. So even though the rest of the world is concerned about tighter monetary policy choking off growth there, it is unlikely that the Chinese economy will experience a sharp growth slump. The policy balancing act between containing inflation and stimulating growth is a delicate one that so far the Chinese government has proved to be very good at, and this is likely to continue for the foreseeable future. We don’t see Chinese growth falling off a cliff, despite their ongoing policy tightening, although it is gradually slowing from very high levels.

Some of China’s economic slowdown is being offset by the US, where the strength of the recovery continues to surprise to the upside. For example, the March Purchasing Managers’ Index (PMI) and Leading Indicator show the manufacturing sector and wider economy continue to rebound.

All this is good news for South Africa’s growth prospects, as the global economic recovery underpins our own. The rand has stayed surprisingly strong, helping to cushion the inflationary impact of higher oil and food prices. this is due to a number of factors: still structurally strong growth in emerging markets; high commodity prices; a healthy current account balance; our relatively high interest rates; and a strong fiscal position.

I don’t expect any of these factors to change significantly any time soon, which is why the rand is likely to stay relatively strong on a trade-weighted basis in the short term. Our budget deficit for the current fiscal year is likely to come in better than expected, our interest rates remain relatively high (they may start rising from late this year or early next year), the current account could deteriorate somewhat as imports rise into the recovery, but commodity prices should stay well supported over the longer-term.

The main concern remains our lack of progress in raising our growth levels structurally, from the current 3-4% to 6-7%, closer to the other BRICS members. We are expecting 3.7% GDP growth for 2011 and 4.0% for 2012. There are several measures we believe government must focus on to improve our growth prospects: lift SA’s relative competitiveness by encouraging a more competitive and productive labour force; increase infrastructure investment; improve service delivery (especially education); preserve a business-friendly environment to encourage private sector investment and continue to focus on keeping inflation low.

*Johann Els is a senior economist at Old Mutual Investment Group SA (OMIGSA).