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31 January 2014



This is the title of an article on Moneyweb by Anne-Marie Smith.


The basic premise of the article is summed up in the first few lines of the article:

Economists around the globe, are warning that history maybe repeating itself far too soon and a global property bubble may be on the horizon.
Various indicators point to property bubbles bursting with a major driver being low interest rates, which fuels consumer spending as it facilitates greater affordability of mortgage repayments. So says Jacques du Toit, Chief Economist at Absa Bank.
He says a property bubble is defined as growth in property prices are above the medium- to long-term average, as well as the presence of extremely high levels of property investment and speculation activity.

What planet have you been living on??? Certainly not Planet Earth ... or more precisely Planet South Africa.

Over the past 6 years SA has experienced zero growth in property prices in real terms. In other words, the rise in property prices has only been equal to inflation and therefore the value of the property to the owner has remained unchanged. Only in the last quarter of 2013 did we see a very small amount of growth in real terms.

Firstly, I am not an economist but I would hardly say that 1% - 2% growth makes a bubble.  Let's look back at the "heydays" around about 2005 to 2008 when people will regularly experiencing 30% - 40% increases per annum in property values.

Secondly, when there is talk in the article of "the presence of extremely high levels of property investment and speculation activity" I am baffled, confused and dumbfounded.  The number of transactions being lodged in the Deeds Offices of South Africa have risen very slightly BUT they are still only about a quarter as many as the 2008 peak.  Surely if there were high levels of property investment it would be reflected in the volumes ... wouldn't it?  This is borne out by anecdotal evidence in the form of MY OWN EXPERIENCE. In other words: "Show me the money!"

Luckily, in the conclusion to the article sanity prevails in the form of a couple of quotes:

However, in light of the reticence of banks to lend, the state of the SA economy, and the state of the SA consumer more particularly, it is virtually a given that house prices will over the next few years grow at rates that are well below the inflation rate, Roode added.

“Current economic conditions and the state of household finances will make it unlikely that a property bubble will form in the South African market in the short term, despite the current and expected continued low interest rates,” said Du Toit.
I would be interested to hear if there is anybody in the SA Property Industry (Brokers, Investors, Developers, Builders, Architects, Conveyancers, etc.) who believes that: "history maybe repeating itself far too soon and a global property bubble may be on the horizon"?????? 

Gareth Shepperson
Commercial and Property Attorney


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