Presented By: Drienie Brand. D Brand Attorneys Attorney, Notary & Conveyancer

Transcription

1 Presented By: Drienie Brand D Brand Attorneys Attorney, Notary & Conveyancer

2 D Brand Attorneys Attorney, Notary & Conveyancer Drienie Brand Practising in Property Law, Conveyancing, Notarial Practice, Immigration and Liquor Licences since Situated in Langebaan, West Coast, Western Cape

3 INDEX 1. An overview of the South African economy. 2. An investigation into globalisation and the interdependency of world economies. 3. The position of real estate generally in the South African and world economies. 4. The impact of both the South African and world economies on the South African property sector in general and the estate agency environment in particular.

4 1 An overview of the South African economy

5 An overview of the South African economy South Africa is a Country with a relatively strong economy with a few strong points and a few weak points.

6 An overview of the South African economy Our Country s strong points are the following: Our prudent fiscal and monetary policies; Political Stability; Good Capital Banking System; Abundant natural resources such as: Well developed regulatory systems as well as research and development capabilities, including: An established manufacturing base; Strength in auditing and reporting standards. Agriculture; Mining; Manufacturing; Electricity and Water; Construction; Wholesale, retail and motor trade, catering and accommodation; Transport, storage and communication; Finance, real estate and business services contributes to 20.7% of the GDP. Progressive legal framework; World class legislation governing commerce, labour, copyright and other fields of business conforming to international norms and standards.

7 We are ranked by the World Bank as an upper middle-income Country with the largest economy in Africa.

8 South Africa was admitted to the BRIC group of countries of Brazil, Russia, India and China in 2011.

9 South Africa was ranked 49th in the Global Competitiveness Report out of 140 countries.

10 An overview of the South African economy The National Treasury are doubling its expenditure since 2002/3 in real terms to ensure service delivery outcomes and strengthening the efficiency of public spending and to root out corruption.

11 An overview of the South African economy The South African Reserve Bank implemented an inflation-targeting policy and prices have remained fairly steady; Stable and low inflation rates protects living standards for the people of South Africa.

12 An overview of the South African economy The Economy is however affected by matters such as unrest and pressure in the mining industry and problems in Europe since Europe is one of South Africa s chief export destinations; The World Bank reports that while the economy continues to grow, especially through domestic consumption, growth is at a slower rate at the moment.

13 An overview of the South African economy The International Monetary Fund (IMF) cut its prediction for growth in GDP for 2016 from 0.6% to 0.1%; Economist Dawie Roodt said that urgent action is needed to kick-start the economy and get it growing at 5%, the lowest rate at which real change could be implemented.

14 An overview of the South African economy There is therefore the downside to the Economy as well. The current economic climate also faces weak economic growth, high levels of unemployment and poverty; He said that he is concerned about what is happening in South Africa at the moment.

15 South Africa s economy is staring down the barrel of a credit rating downgrade as the country s finance minister is facing charges. He said that The ratings agencies will act on a potential change in policy or policy uncertainty. Replacing a minister of Finance will lead to policy uncertainty. Dawie Roodt - Economist

16 An overview of the South African economy The World Economic Forum however classifies South Africa as a safe investment platform for expansion into Africa with its number one ranking in auditing and reporting standards.

17 2 An investigation into globalisation and the interdependency of world economies

18 Globalisation

19 Globalisation Globalisation is the integration of economies through exchange of products and ideas. The most important factors to influence globalisation are technology and governmental policies; Policy and technological developments have spurred increases in cross-border trade, investment and migration in the past few years; Since 1950 world trade has increased by 20 times; Governments have also negotiated reductions in barriers to commerce and have established international agreements to promote trade in goods, services and investments.

20 Globalisation Countries are exchanging products and resources amongst each other which is mutually beneficial to each country; For example South Africa is one of the biggest global producers of platinum, coal and diamonds which we then export; Germany produces machinery, motor vehicles, and chemical products. China produces electronics, clothes and footwear.

21 Globalisation Each country has its own speciality so to speak: South Africa is rich in mineral resources; Germany produces high quality products; and China produces large volumes of products at a low cost. Every country would export their speciality products to the world and import the products that they do not produce or have great quantities of.

22 Globalisation The question that often arises is why South Africa doesn t produce so much of its own clothes or cars; The simple answer to that is South Africa could produce its own clothes and cars but it would struggle to compete with China s quantity and price as China s labour laws are very different from ours.

23 Interdependency

24 Interdependency Each country is dependant on the other country to export their products and import others products. This concept is called interdependency.

25 Interdependency The participants in any economic system must be part of a trading network to obtain the products they cannot produce efficiently for themselves; Any change in such a network affects other participants, so that the demands for various products and the incomes of the participants are interdependent.

26 3 The position of real estate generally in the South African and world economies

27 According to research by the Property Sector Charter Company, the Real Estate Sector is worth approximately R4.9 trillion in South Africa

28 Position of Real Estate The Real Estate Sector contributes significantly to the Country s economy and constitutes approximately 8% of the GDP, according to a South African Property Owners Association research report; The study also indicates that about two-thirds of the property owned in South Africa is residential and worth R3trillion, while commercial property is worth R780billion; Then there is also undeveloped land zoned for development and publicly owned property.

29 Position of Real Estate Nominal house price growth of 5-6% was forecast for 2016; South African rental yields are good in large cities; One of the most stable residential property markets in South Africa is Cape Town as a result of its central location and being a popular tourist destination in Africa.

30 Position of Real Estate From 2000 to 2006 South Africa experienced an economic boom which was as a result of: The financial stability of the emerging black middle class who required accommodation; South Africans who invested money offshore were able to bring their money back into the country which was predominantly invested in property; South Africa started stabilizing after Apartheid; Capital Gains Tax Primary Residence Exemption raised from R to R ; Transfer duty was not payable on properties under R

31 Position of Real Estate In 2008 South Africa s property market ground to a halt as a result of the implementation of the National Credit Act and the Global Financial Crisis. This negative growth continued until 2011; During 2012 the housing market bounced back and house prices started to rise gradually by an average of approximately 3%.

32 Nominal house price growth of 5-6% was experienced during 2016, with the risk to the downside against the background of economic and consumer sector trends and prospects real house price growth is expected to remain under pressure in the next months. Absa

33 The average house price growth is estimated at 3% for 2017 but when adjusting for inflation (at current consumer price inflation of 6.5%), is expected to decline to -3.5%. In 2018 this marginal rate will be 0%, therefore a better anticipated year than FNB

34 Residential Construction activity is on the rise and this is a generally good sign for future growth

35 Position of Real Estate The world has seen relatively flat growth in the past few years; Confidence, affordability and debt are constraining Europe; Strict lending and the looming fiscal problems is not good for growth in the US; Regulatory measures and the economic downturn in China is not assisting in Asia.

36 Position of Real Estate South Africa ranks well in comparison to other countries with the buying and selling of luxury high-end market properties; Authors of the global Wealth Report pick Johannesburg as one of the world cities of the future along with Cairo, Lagos, Mumbai and other well-established cities such as London, New York and Moscow.

37 Position of Real Estate South Africa competes with the best Countries in the world when it comes to diverse offering of beautiful beaches, mountains and forest belts, semi-deserts and the African veld.

38 Position of Real Estate In an article by Lea Jacobs on Private Property, she says that average house prices around the world look as follows: In London R10million; Elsewhere in the UK R5.8million; New York R12.5million; Sydney, Australia R7.3million; Elsewhere in Australia - R5.8million;

39 Position of Real Estate South Africa really offers excellent value for money; The homes tend to be bigger in South Africa than in the rest of the world They are also situated on larger erven and provide security systems and swimming pools; We also have excellent weather on our side.

40 4 The impact of both the South African and world economies on the South African property sector in general and the estate agency environment in particular.

41 The House price index for South Africa from 2006 to 2016 shows that house prices have gradually increased as the property sector has grown.

42 Impact of the South African economy on the Estate Agency Environment Government s effect on the economy is vast. In 2012 the Zuma government introduced the National Development Plan that entailed several statutes and bills that greatly increase the Government s interventionist powers and clearly prioritize the redistribution of property and not the expansion thereof; This weakens property rights and reduces private sector autonomy, threaten businesses and undermine investor confidence.

43 Impact of the South African economy on the Estate Agency Environment According to a newspaper report, the Economic Freedom of the World Report of 2014 tracked 152 countries, ranking supporting laws and economic freedom rights and security of property; South Africa continued to fall, from 89 th 2013 to 93 rd in 2014; in Spokespeople of SAFRI, a German Business association in South Africa, has expressed dismay over the direction of the economic policy.

44 Impact of the South African economy on the Estate Agency Environment Foreigners own around 3% of all South African properties, a proportion which is still growing, according to Tyson Properties; Foreigners can still own immovable property in South Africa without restriction; Property in South Africa is now dramatically less expensive for foreign buyers than a few years ago According to FNB s Q Estate Agent Survey, there were no major rise in home buying by foreigners. This could be attributed to: Declining investor sentiment towards South Africa, also reflected in the weaker rand; Weaker performance of residential property globally, influencing its popularity as an asset class.

45 Impact of the South African economy on the Estate Agency Environment South Africa s households are under some financial strain because of slower economic growth, low employment levels, interest rate hikes caused by inflation as well as weaker consumption.

46 Impact of the South African economy on the Estate Agency Environment The world s financial markets and the world s real economies have been in trouble for some time; There were a number of imbalances in the world s economy.

47 Impact of the South African economy on the Estate Agency Environment The Greece debt crisis, the changes in the US and Europe, the Immigrant situation, the economic downturn in China as well as the South African slow economic growth are also to blame.

48 Impact of the South African economy on the Estate Agency Environment According to the International Monetary Fund, the recovery of financial and oil markets that started in February this year continued until June as markets assumed the UK would remain in the European Union; Declines in excess oil supply helped bolster oil prices. Bond yields in the main advanced economies declined further however and stock market valuations remained broadly steady.

49 Impact of the South African economy on the Estate Agency Environment From a macroeconomic perspective, the Brexit vote in the UK implies a substantial increase in economic, political, and institutional uncertainty, which is projected to have negative macroeconomic consequences, especially in advanced European economies; But with the event still unfolding, it is very difficult to quantify its potential repercussions.

50 Impact of the South African economy on the Estate Agency Environment In the United States of America the election of Donald Trump as president has caused uncertainty for investors which have caused many of them to look for investments in other countries; These uncertainties can cause a hesitation in the market to invest in real estate; On the positive side, as Price Waterhouse Coopers say in their brochure Building the future of Africa

51 A Property market that expands and grows in sophistication is usually associated with various other indicators that are favoured by economic policymakers.

52 Impact of the world economies on the South African property sector A study by Price Waterhouse Coopers, titled Real Estate 2020 predicts a huge expansion in investable real estate in emerging economies, where economic development is expected to lead to better tenant quality and, in some countries, clearer property rights; And it will play out across the housing, commercial, real estate and infrastructure sectors.

53 Impact of the world economies on the South African property sector According to the report by Price Waterhouse Coopers, Global megatrends will change the real estate world as we know it today. These megatrends are: Migration to the cities will cause fast growth in certain cities and countries; Shifts in population will drive changes in the demand for real estate; The emerging markets growth will make competition for assets soar; Sustainability will transform the design of buildings and developments, presenting opportunities and risks for real estate managers. Technology will disrupt real estate economics in that shorter delivery times will increase the need for warehouse space. The need to finance urbanisation will develop.

54 Impact of the world economies on the South African property sector Price Waterhouse Coopers suggest that Real Estate Managers will need to do the following: Think more globally; Understand the underlying economics of cities; Decide where and how to compete as the competition for prime assets continues to intensify; Partner with Government to mitigate risks of schemes that might otherwise be uneconomic; Demanding greater global specialisation.

55 Impact of the world economies on the South African property sector While residential property markets are, by their nature, local as they are not traded on global markets like commodities, currencies and equities, all real estate markets are influenced by global forces which ultimately shape their long-term prospects; This is according to Dr Andrew Golding, CEO of Pam Golding Property Group during 2015.

56 Impact of the world economies on the South African property sector According to the Savills research report, the single fundamental driver of residential property demand has always been the number of households in a population seeking shelter; Essentially Dr Golding says the three metrics identified as having the greatest influence on housing markets generally are: Demographics: The number of households Affluence: the pace of economic growth and incomes Land and / or housing supply

57 Impact of the world economies on the South African property sector If all three factors are positive for a particular housing market, then house price growth will exceed the general inflation rate says Dr Golding. However, he says the absence of one of these variables is likely to stall a housing market, while the absence of two or more is likely to send property values downward.

58 Impact of the world economies on the South African property sector Dr Golding sums it up by saying that Rapid population growth combines with the ongoing shortage of new housing suggests that the local housing market will continue to enjoy a solid underpinning during the year ahead.. and while growth in house prices is likely to be limited to single digits, once the local economic outlook improves, a rebound in house prices can be anticipated. It is also important to remember that a stable national housing market does not preclude buoyant growth in more localised metro housing markets such as we are currently experiencing in South Africa

59 Impact of the world economies on the South African property sector According to Chris Renecle, MD of Renprop: We are now expecting to see a return to normal in terms of the counter cyclicality of the residential and office space markets. The residential property market is expected to remain relatively robust, while we anticipate the office market will continue to experience lacklustre trading conditions in the year ahead.

60 Impact of the world economies on the South African property sector He says that While South Africa s financial markets, currency and resources have been volatile for most of the year, residential property in most areas throughout the country has remained on an even keel, and even though growth has been mediocre overall, it has still been a solidly performing asset class. Renecle does not believe that there is a residential property bubble on the horizon for South Africa.

61 Impact of the world economies on the South African property sector Interest rates might go up during 2017; The higher interest rates, no matter how small the increases, will translate into less movement in the residential property market, coupled with lower growth; However, buyers who are relying on finance should bear in mind that since late 2010, we have had one of the lowest interest rates that we have seen since 1979

62 Impact of the world economies on the South African property sector We believe that although the market is slow and growth in property prices will not significantly increase during 2017, the place for Real Estate Agencies in the market will remain stable and a viable business.

63 Impact of the world economies on the South African property sector CONCLUSION The key is to advise your clients to choose the right investment property to enjoy good capital growth for many years. The variables to consider are as follows: Price; Rental Income; Area; Affordability; Rates and Taxes; Condition of the Property; Value of the property in relation to the area; Annual increase in value of the property and surrounding properties in the area;

64 Sources Southafrica.info Fin24.com Globalpropertyguide.com Wikipedia Reimag.co.za Hometimes.co.za Pwc.co.za Imf.org Property24.com

65