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PRETORIA, GP, South Africa
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11 June 2008


In a follow-up to my previous post, it is interesting that the “whistle blower” (Maurice Levin) who released the Lew Geffen memo to the public has been fired. He states that:
“Mr Geffen terminated my contract on the simple grounds that he did not authorize the release of the memorandum content to the media. It is a sad day when an until-now respected property veteran with forty years of experience is wholly comfortable telling his staff that he predicts the residential property market will plummet 40% in the next year, but not the media community serving the ordinary man in the street. “

There is no doubt that a genuine “whistle blower” performs a valuable, noble and righteous task when he reveals criminality (fraud, corruption, etc.) or unethical behavior within his organisation, however, I don’t believe that revealing your employer’s market assessment and strategy serves the same lofty ideals.

My skepticism is shared by “CJ” in a comment to the above story when he says:
“8 Stories on Realestateweb alone in 7 days - an honest agent telling you how it is and the main people who will benefit are Sotheby's clients, both buyers and sellers. Lew I salute you. Someone had to knock some sense into this market. The only . .more mistake was firing the PR guy ... or is that also part of the story to make it run longer ? I suggest keeping him on a retainer and then wait until the market falls another 10% and hire him back with a big public apology and fat bonus.”

Another agency has also come out and publically opposed the sentiments expressed by Lew Geffen.

HOWEVER … in the most bizarre aspect of the whole thing, Lew Geffen’s own son (Saul Geffen) has also distanced himself from his father’s memo.

For a completely opposite view of the Property Market in SA, there is an article dealing with listed property. The point of the article is encapsulated in the following extract:
The perception at the moment is that the property market is in free-fall. This perception would seem to be backed up by the fact that The JSE's property index - which tracks the performance of various listed property stocks - has fallen by 32% over the past seven months. Listed property prices are down to levels last seen in December 2005. The sector tends to be more volatile than its unlisted counterpart; trades take seconds to effect, so investor sentiment can make itself felt very quickly.
When directors buy stock in their own company, fund or loan stock, it sends a positive signal to the market.One director who has been buying is Paul Theodosiou of Acucap (JSE:ACP) who has bought stock worth R1,7m in 2008.
Theodosiou says he thinks the market has been sold off too fiercely, and that the physical property fundamentals have not deteriorated as much as the stock prices suggest.
Theodosiou says he thinks the market has been sold off too fiercely, and that the physical property fundamentals have not deteriorated as much as the stock prices suggest.
"We've been monitoring it monthly and there have been no obvious signs of stress," notes Theodosiou. He says that it's possible to buy property stocks with forward yields of 10,5%. "It's an equivalent yield to cash, but you get the opportunity for capital growth and revenue growth."

Gareth Shepperson


What exactly is the state of the Property Market in South Africa?

Well, when assessing the health of any sector, you need to see what the people on the “frontline” have to say about it. Estate Agents are surely the vanguard of all others involved in the Property Market since they are the individuals who are out there on a daily basis initiating the deals that banks, investors and conveyancers usually only see after the deal has already been concluded.

It is therefore very insightful to read the internal memo by Lew Geffen that was leaked to the public. This memo is indeed a prophecy of doom wherein it is suggested that the property market is already down 15% and is likely to fall another 25% (i.e. a total fall of 40%) from the highs of last year.

On the opposite side of the spectrum is Dr Andrew Golding (CE of the Pam Golding Property Group). He has said in a post on Realestateweb that “While there are a range of factors at play which are currently affecting the residential property market in South Africa there is no need for widespread panic. These include global economic factors, national and political issues, a less positive sentiment, interest rates and the National Credit Act.

He goes on to say that "There is much speculation in regard to the current situation in the residential property market, and unfortunately generalisations being bandied about in the marketplace in regard to house prices are dangerous. The fact is it's not a 'one size fits all' scenario and there is no question that sales volumes have declined by some 20-30 percent year on year with an inevitable impact on house prices. However, the residential property market is sufficiently robust to deal with the changing dynamics and will continue to provide a reliable mechanism for the buying and selling of properties, albeit at lower volumes. Prices will adjust in line with supply and demand but fundamentally there are still valid reasons for residential homes to trade and there is certainly no need for panic selling, in fact quite the contrary.

It is interesting to note that others are also not sure.

If the Estate Agents are conflicted, then surely no one else can accurately assess the current state of the market. We are clearly in a downturn but the depth of it is unknown. All I can say is that the market always goes in cycles and that therefore if we are in a downturn then it is only a matter of time before it turns and I therefore agree with Dr Golding that it is definitely NOT time for panic selling.

The “not quite” Denny Crane
a.k.a. Gareth Shepperson