Real Estate Investor Magazine South Africa March 2013 | Page 22

CASE STUDIES

BY MONIQUE TERRAZAS

Economic Growth Cannot Withstand More Protests
The Good

s Going Up
Home Price

Bill Rawson, Chairman of the Rawson Property
Group, recently drew attention to an article
published in the 12 January 2013 issue of The
Economist, which shows that South African
home prices performed significantly better in
2012 than those of 85% of the world’s developed
countries.
South African homes increased in value by 5%
year-on-year in 2012. Only Hong Kong (21.8%)
and Austria (10.1%) performed better. Nine of
the 18 countries listed in the survey saw their
homes lose further value in 2012, the worst
being Spain (-9.3%), the Netherlands (-6.8%),
Ireland (-5.7%) and Italy (-4%).
While South African home prices have risen
by only 12.2% since the first quarter of 2007,
the local property market looks fairly stable in
comparison with the USA (-20.5%) and Japan
(-14.2%) over the same period.
Slow growth (2.5%) has been predicted for
2013, which means, in real terms, that South
African homes will lose value in the coming
year. But, says Rawson, although this may be
true of the market as a whole, in the lower priced
brackets increases of up to 10% are still being
seen annually.
Given that The Economist’s survey shows
that South African residential property is
still undervalued by 5% on the price to rent
ratio index, South African property investors
can look forward to further significant rental
growth and steady capital growth. The fact that
South African rentals are well above average,
in relation to the global figures, suggests that
capital values must continue to rise.

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March 2013 SA Real Estate Investor

The Bad

A Blow
GDP Takes

South Africa’s economic growth is not strong
enough to withstand any further damaging
events without serious consequences, according
to the latest Bankser vAfrica Economic
Transaction Index (BETI), the broadest and
fastest indicator of broad economic activity in
South Africa.
Last year’s strikes overshadow any prospects
of 2013 being the year of an economic bounceback, says Mike Schüssler, chief economist
at economists.co.za. And while the last three
months of positive quarterly increases indicate
a recession is not on the cards, stagnation in the
economy is continuing.
The BETI indicates that economic activity at
the start of 2013 is much slower than it was at
the start of 2012, which is likely to have a big
impact on the rest of the year’s GDP growth rate.
“A slow start means that the rest of the year has
to produce so much more to catch up for lost
production in the beginning,” says Schüssler.
The BETI is currently only up by 1% relative
to January 2012, making it the lowest year-onyear improvement since June 2010 when the
economy was recovering from the recession
of 2008/09. “Workers feeling the pinch are
demanding more cash, while the economy is
making increased economic activity difficult,” he
adds. “We are, indeed, in a very tight spot.”
The January quarter-on-quarter growth figure
of 1.6% indicates a slight pick-up in the growth
trend, but not enough to halt the declining yearon-year trend. The BETI is currently indicating
that GDP growth will still be positive, but low.

The Ugly

Securitising

Loans

While a court ruling in the US has, essentially,
declared the practise of securitising home loans
illegal, local banks securitise loans worth about
R30 billion a month, according to the South
African Banking Association’s website.
Banks securitise loans by bundling them
together using a special purpose vehicle (SPV)
and selling them to third party investors, who
trade them on the capital markets. According
to NewEra, an organisation campaigning for
transparency in banking, banks are not upfront
on this issue. The reason is that legally, once a
bank securitises a loan, it loses all rights to the
asset. This means the bank cannot, for example,
repossess a property on which a loan has been
securitised, because the bank no longer has any
rights to the property. The implications of this
are staggering: thousands of homes may have
been illegally repossessed by banks in South
Africa.
The issue is already being tested in court.
According to a report in Business Report,
foreclosure proceedings in the Western Cape
High Court against homeowner Melric
McEpieuw has been postponed to enable
Absa to produce the documents relating to the
securitisation of the home loan and to disclose
the buyer. Absa apparently f irst claimed
that the documents were destroyed in a fire
before admitting that the home loan had been
securitised.
In the meantime, NewEra is encouraging all
homeowners to request the National Credit
Regulator (NCR) to investigate the practise
of securitisation in South Africa, which is
clearly an infringement of our rights as credit
consumers. Visit www.newera.org.za for more
information.
www.reimag.co.za