In the mid-winter of our economic cycle the property industry is all eyes and ears for the first signs of the next upswing. Despair has given way to a mood of endurance for estate agents, mortgage originators and conveyancers who have survived so far.
There’s so much talk of ‘green shoots’ that the phrase has become a worn-out cliché. Interest rates are falling. Stock exchanges are recovering. Banks are very tentatively raising their mortgage risk. Panic over global depression has been replaced by the relief a mere deep recession.
There are other reasons for hope. Our black middle class continues to emerge. Millions of South Africans continue to move from the country to the cities and transform from low-productivity rural to higher-productivity urban workers.
The government-funded R400bn - and more - roll-out of infrastructure will go on for a decade or more. The demand for housing will ensure that the property prices continue growing – particularly as the current downturn has interrupted rather than ended the long-term recovery of the real estate market from its decades of pre-democracy decline.
The market and the industry will return to growth. But it will do so in a new era. The age of excess is over. The age of uncertainty has arrived. There are no more jobs for life. Defined benefit pensions long ago gave way to defined contribution ones. There is no nanny state or patronising employer to make us financially secure for the rest of our lives.
For me, the archetype of our new uncertain age was the SA general election of April 22 this year. There was no doubt that the ANC would remain in government, so the two big issues were whether they would win a 2/3rd majority and whether the DA would win an absolute majority in the Western Cape legislature. Within hours of the first results, both data hovered around, above and under these critical thresholds. Peoples’ moods jumped from elation to despair as they followed this. In the end the ANC didn’t and the DA did. But will it really make much difference to the way our lives go? Uncertainty remains.
Governments, societies, communities, families, along with their attendant financial, economic and social dynamics seem increasingly unstable. Even our learned judges appear to have the lost ability to make wise decisions, while politicians appal us with their buffoonery. This all adds to our insecurity about our future welfare and wealth.
Uncertainty will be front and centre of our property market as it is in most walks of life. A perfect example of this is the growing number of property indexes from Absa, FNB, Lightstone, Standard and ooba. One week the media report a 2,7% rise in prices, the next an 11% fall. A few years ago we were quite happy to have one index from Absa. Now what do we make of these often conflicting indexes?
Sometime late this year or early in 2010 one index will report that price falls have ended and the upswing has started. Others will say that the downturn has gathered pace. We will not be certain of a turnaround until we’re some way into it. And even then it is likely to be tenuous and feeble. Households will be concentrating on rebuilding their assets and savings. Banks will continue to struggle with bad debt and the rigours of Basel 2 capital requirements.
Broader political and social uncertainties will dominate our newscasts and our consciousness, making it difficult to take heart from the tentative upturn. Bank credit committees worrying over the same uncertainties that affect us all will cap sales turnover – the lifeblood of the industry. The property market will be all sentiment, more often than not a febrile despair, and not much action. Transactions will remain far below the boom levels of, say, 2006.
How do we deal with this uncertainty? Through knowledge; by concentrating on the actual realities of the market we operate in. An index is a theoretical figure. A transaction is concrete and specific. If we know how property actually works, we know that it remains the biggest store of wealth in the world for ordinary people. That it is so because it remains the most predictable and conservative of asset classes. And it’s more often than not a home, too.
For myself, this uncertainty is the most compelling reason for being heavily invested in property. I will make sure I understand it and work it even more energetically and professionally than before.
The New Age of Uncertainty
Private Property South Africa
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