In a recent Pharma Dynamics survey, conducted among more than 3,000 South Africans nationally between the ages of 15-50, over 62% said they live in constant fear of missing out (FOMO). Symptoms include jaw clenching (41%), the inability to put one’s cellphone down (30%), excessive SMSing (24%), compulsive sweating (18%) and even Tweeting when on the toilet (11%). Whether it’s the fear of spiders, crime, heights or being turned down for a home loan, fear can paralyse. In the South African real-estate sector it paralyses buyers and prevents an Offer to Purchase from being signed. The perception of an unstable economy may make the fear of losing one’s employment justified.
Fortunately, for first-time buyers the fear of being able to maintain bond repayments is partly allayed by risk-sensitive lenders whose responsibility it is to ensure that the loan is not only legislatively compliant with the National Credit Act (NCA) and Consumer Protection Act (CPA) but also will not, at some point in the future, constitute ‘toxic debt’.
Overcoming the paralysis – the fear factor – can be financially rewarding, as was evident from the television series of the same name. Recent research by Knowledge Factory indicates that purchasing your primary residence now, in a down market, can be rewarding in the long term. Current rental yields are not particularly encouraging for buy-to-let investors. However – for fear of missing out – many continue to expand their portfolios by picking up bargains from distressed sellers.
With Mangaung looming, politicians are keen to create patriotic optimism with promises of job creation, additional gap-housing programs and a stable economy. However single-digit nominal house price growth, low interest rates and sufficient stock in popular areas is not enough to kick-start cheerfulness in the real-estate economy. Healing requires time and the fragility still evident in both the micro and macro sectors must worm its way through the current cycles.
Nevertheless thousands of property professionals are utilising the information supplied by reliable property data portals to navigate sellers to a market-related price. Educated buyers – for fear of missing out – are leveraging banks’ higher risk appetite and grabbing never-to-be-repeated offers from property developers. Developers have sweetened housing deals with promises to pay the home insurance for a year or bond repayments for 3 months.
Real-estate agents – for fear of missing out – are making sure that each mandate is showcased on SA’s premier property websites so that prospective buyers and tenants can see what is on offer.
The Reserve Bank (SARB) took even experienced economists by surprise with its rate cut last week sighting a generalised slowdown in the global economy amid the continuing risks posed by the Eurozone and declining commodity prices. Until recently restraint has been the global watchword, although some emerging markets notably Brazil, Israel and Czech Republic have lowered interest rates further. Our current interest rate of 8.5% is at historical lows – last seen in August 1972. The rate is now considerably lower than that suggested by the Taylor Rule.
There is good reason, therefore, for property owners with mortgage bonds to benefit from the rate cut and clean up their balance sheet while low rates persist. History shows that, under the right conditions, private-sector deleveraging leads to renewed economic growth and then later on down the line, public-sector debt reduction. GDP growth in South Africa is expected to rise to 3.6% in 2013, subject to global recovery taking place and (hopefully) an orderly resolution of the Eurozone clutter. With those prospects in sight and a climbing growth curve, no one will have to miss out.
Dieter Deppisch
Property Sector Analyst
Knowledge Factory
