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Johannesburg - The first possible impact of the weak rand on residential property, could be a dampening effect on domestic home buying, although it is near impossible to determine at what point this may or may not happen, according to John Loos, FNB's household and property sector strategist.
He explained that 2013 ended with various residential property numbers looking positive.
In the FNB Estate Agent Survey for the fourth quarter, the residential activity rating was up once more and a significant number of agents reported residential stock constraints in their areas.
"Early in 2014, however, our perception is that there has been a noticeable increase in media attention and 'hype' around residential property," he said.
"Initially, this media attention was generally positive. It focused on a rather upbeat residential market at a time when the rest of the economy has not been doing that wonderfully."
The question repeatedly asked was whether now is “the time to buy”, either for an own residence or for letting purposes.
"In recent days, however, renewed rand weakness may have started to erode general sentiment in South Africa," said Loos.
"This is on top of its depreciation being in part driven by a deterioration in sentiment - along with other key factors such as US Federal Reserve 'tapering' or the prospect thereof."
Potential impact
The rand is seen by many as the “share price” of South Africa, and radical depreciations can bring about an air of “gloom” in the country, explained Loos.
"The most recent bout of broad Rand depreciation has been a sustained one too, lasting all the way back to 2011, and it may be starting to 'wear us down'," he said.
More significant, in his view, is a second potential impact that the weakening rand could have.
This is via its impact on imported inflation, and therefore on interest rates, because the residential market is a highly credit-dependent one.
In recent days, some economists have even been openly debating the possibility of interest rate hikes being brought forward in 2014.
"Our recent expectation had been only for a 2015 start to interest rate hiking," said Loos.
The mere heightened speculation of earlier interest rate hikes may make home buyers more cautious, but if not, then actual interest rate hiking almost certainly would.
"The rand is certainly not the only driver of inflation and interest rate hikes, but recently it has threatened to become an important one," said Loos.
Foreign buying
While our FNB House Price Index in Rand terms has shown respectable, if not extreme, growth through 2012/13, the picture is very different in “hard currency” terms, said Loos.
In dollar terms, the year-on-year drop in the FNB House Price Index for December was -9.6%, in pound terms -10.9%, and -13.5% in euro terms.
The cumulative drop since as recently as July 2011 has been quite extreme: -19.7% in euro terms, -22.9% in dollar terms and -24% in pound terms.
So, for a foreign property investor these days, the SA market is far cheaper.
"It is possible that some foreign buyers may take advantage of 'bargains', but we doubt whether it would have a significant impact,in the same way that SA’s goods and services exports never seem to be boosted dramatically by a weaker rand," said Loos.
Impact on emigration
The fourth potential impact point of a weak rand on residential property is via a possible impact on the levels of emigration, and thus on emigration-related home selling.
"A weak rand is not only driven by poor sentiment, but also becomes a driver of weak sentiment," said Loos.
"Therefore, it is conceivable that the rand depreciation has something to do with this, as people see the value of their wealth being eroded steadily."
The fourth quarter FNB Estate Agent Survey shows an estimated emigration selling percentage (of total sellers) of 2.7%.
This is still lower than the prior quarter’s 3% and the lowest percentage since the survey question started late in 2007.
"We believe that this time around South Africa has the 'good fortune' of global unemployment levels being relatively high," said Loos.
"This is causing traditionally attractive emigration destinations not to offer great job prospects for prospective SA emigrants. Far more people are staying put this time around."
He explained that 2013 ended with various residential property numbers looking positive.
In the FNB Estate Agent Survey for the fourth quarter, the residential activity rating was up once more and a significant number of agents reported residential stock constraints in their areas.
"Early in 2014, however, our perception is that there has been a noticeable increase in media attention and 'hype' around residential property," he said.
"Initially, this media attention was generally positive. It focused on a rather upbeat residential market at a time when the rest of the economy has not been doing that wonderfully."
The question repeatedly asked was whether now is “the time to buy”, either for an own residence or for letting purposes.
"In recent days, however, renewed rand weakness may have started to erode general sentiment in South Africa," said Loos.
"This is on top of its depreciation being in part driven by a deterioration in sentiment - along with other key factors such as US Federal Reserve 'tapering' or the prospect thereof."
Potential impact
The rand is seen by many as the “share price” of South Africa, and radical depreciations can bring about an air of “gloom” in the country, explained Loos.
"The most recent bout of broad Rand depreciation has been a sustained one too, lasting all the way back to 2011, and it may be starting to 'wear us down'," he said.
More significant, in his view, is a second potential impact that the weakening rand could have.
This is via its impact on imported inflation, and therefore on interest rates, because the residential market is a highly credit-dependent one.
In recent days, some economists have even been openly debating the possibility of interest rate hikes being brought forward in 2014.
"Our recent expectation had been only for a 2015 start to interest rate hiking," said Loos.
The mere heightened speculation of earlier interest rate hikes may make home buyers more cautious, but if not, then actual interest rate hiking almost certainly would.
"The rand is certainly not the only driver of inflation and interest rate hikes, but recently it has threatened to become an important one," said Loos.
Foreign buying
While our FNB House Price Index in Rand terms has shown respectable, if not extreme, growth through 2012/13, the picture is very different in “hard currency” terms, said Loos.
In dollar terms, the year-on-year drop in the FNB House Price Index for December was -9.6%, in pound terms -10.9%, and -13.5% in euro terms.
The cumulative drop since as recently as July 2011 has been quite extreme: -19.7% in euro terms, -22.9% in dollar terms and -24% in pound terms.
So, for a foreign property investor these days, the SA market is far cheaper.
"It is possible that some foreign buyers may take advantage of 'bargains', but we doubt whether it would have a significant impact,in the same way that SA’s goods and services exports never seem to be boosted dramatically by a weaker rand," said Loos.
Impact on emigration
The fourth potential impact point of a weak rand on residential property is via a possible impact on the levels of emigration, and thus on emigration-related home selling.
"A weak rand is not only driven by poor sentiment, but also becomes a driver of weak sentiment," said Loos.
"Therefore, it is conceivable that the rand depreciation has something to do with this, as people see the value of their wealth being eroded steadily."
The fourth quarter FNB Estate Agent Survey shows an estimated emigration selling percentage (of total sellers) of 2.7%.
This is still lower than the prior quarter’s 3% and the lowest percentage since the survey question started late in 2007.
"We believe that this time around South Africa has the 'good fortune' of global unemployment levels being relatively high," said Loos.
"This is causing traditionally attractive emigration destinations not to offer great job prospects for prospective SA emigrants. Far more people are staying put this time around."
