Things are looking increasing grim in the South African real estate market. During the period 2001-2006, Sputh Africa had the perfect storm of hype, fluff and optimism, coupled with greed, avarice and fraud which artifically inflated values and produdec an absurd level of overdevelopment in some areas. Since early 2007 I've been warning people for these inflated values.
Already late 2006 I had a feeling when looking to the South African real estate market that "something was not right there".
Since 2006 South Africa has an increasingly strong Blogger community, critizing many things openly. Justin Hartman, the founder of Afrigator is one of them. He launched for example SAA sucks, a blog whicj is bringing South Africa Airways to its knees and to which I happily participated. On January 20th, the whole crew of a SAA flight has been arrested for carrying 50kg cannabis and 4kg cocain the their luggage; yes that kind of airline...
There's also a widespred Blogging coverage on the South African real estate market, Cape Town Property Bubble being one of them. Most of those Bloggersoperate anonymously.
Today many SA developers are desperate. To get the cash flowing to keep mortgages and construction loans intact, are trying everything: slashing prices in half, selling units in bulk packages to vulture firms or equity groups. Condo owners who bought at the top of the market, meanwhile, steam while their neighboring units are rented out at pennies on the dollar and their condo associations struggle to scrape together enough cash to keep basic services such as garbage collection and maintenance.
In May 2008 this Cape Town Greenpoint Apartment was for sale at 1.895.000 SAR. Today the seller is asking for a buyer to just take over his bond and take it off his hands for 1.550.000 SAR.
South African banks can't even sell their repors. This repossessed house in Milnerton was listed in December 2008 for 1.650.000 SAR (initially it was listed at 1.900.000 SAR). Today the bank is not succeeing to sell the repossessed house at 1.300.000 SAR.
Yet many investors remain blind for the true extent of the SA real estate bubble; they remain blinded by the bluff. Especially banks like FNB fueled the hype. Here is an overview of quotes from FNB property economist John Loos from the period 2006 - 2009:
"I think later in the decade towards 2008, house inflation will start to pick up".
"So, I don't see the end of house-price inflation for the country as a whole, and I think that by about next year you could start seeing a recovery in house-price inflation after some further decline this year... I think commercial property returns are going to be excellent for the rest of the decade".
"I expect to see a gradual uptick in demand for residential property towards the middle of the year... I don't think one should probably wait much longer. If one's holding out for price deflation I think you're probably going to be disappointed... I don't think it's a situation where we're going to see price deflation on a significant scale".
"You mustn't count residential property out, from a point of view of getting into the market. The good time to get into residential property is probably just about here, as residential is probably near the bottom of the cycle".
January 13, 2009 (Business Day Summit show transcript, January 13, 2009)
"Yes, I'm afraid the whole global crisis has gone substantially further than most of us expected; it's taken the property downturn that started back in 2004 to worse levels and we're into price deflation and there's not a lot we can do about the situation as to where we are."
What is absolute worrying is the recent political evolution. Last week for example, president Kgalema Motlanthe decided last week to enact a legislation which will disband the Scorpions in South Africa. The Scorpions is South African's elite unit, just like you BOPE in Brazil. This decission is a political vendetta and marks a dark day in South Africa's democracy. The juridical independence and the effectiveness of crime fighting institutions willbe seriously impacted.