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Johannesburg - I see that comments on the property market by John Loos et al for next year are on the receiving end of the usual peals of abuse from Fin24.com readers.
In an article published by Fin24.com Loos said that the property market had moved into "full-blown price deflation" but that a deceleration of supply could support property prices somewhat.
This reminds me of how, two years ago, folks would scrawl under my columns about what they believed to be a perfect investment - property. Well, when the herd bleats, the leopard must move.
My own record on property? I sold my house in February, and bought in September. I must disclose that there were some very substantial personal factors that would detract from any attempt by me to pose as a guru with perfect foresight, but I have put my tin on the buying table.
I can also say with certainty that the replacement value of properties on the market are well below their market prices, which constitutes a vicious reversal from 18 months ago. Sure, some building costs are coming down, but the cushion is a thick one.
Formula
You know how the banks calculate your bond? It's a rule of thumb in which they take 30% of your recurring annual income and divide by the prime rate. The formula is BondVal = 0.3 x AI/prime. That's pretty much it.
Bear in mind that the consumer price index (CPI) - and hence rates - will come down heavily this year; in fact, CPI is certain to be below 7% by March. So the amount that banks will be able to lend in terms of the National Credit Act will greatly increase. Try putting in 12% instead of 15% and you'll see what I mean. This capacity to borrow will boost prices.
There is another example that illustrates this: check the car market. Cars usually come off finance packages in year seven or eight. This is why I always buy nine-year old cars: there is so little finance available for them therefore they get thrown away. Would I buy a new car? Not this side of ever!
One final note on why property could harden.
A lot of would-be emigrants have had to do a rethink as the bottom fell out of the job markets in their desired destinations, some will have even sold and then had to rethink their move.
Deposit
I would be a buyer of property on a maximum 50% bond. Why this number? Because deflation is still a risk, as is getting retrenched in these tough times. This is why the rental market is so firm.
If you get booted out of your job, the rental income should easily finance your bond and allow you to keep your property if you are quick-witted enough to put your goods in storage, and take a small rental until you find your feet.
Make no mistake, 2009 will be tough, and scenario planning will work even better than thinking quickly on your feet. If you do not have plans for what you would do if you lose your job, then sit down and start writing. No-one is immune. As Andy Grove of Intel says: "The neurotic survive."
- Fin24.com
