MARCH 2010 UPDATE of S A RESERVE BANK Data Dr Johan Snyman STELLENBOSCH 25 March 2010.

MEDIUM-TERM FORECASTING ASSOCIATES Building Economists Tel: (021) 883-8152 PO Box 7119 Fax: (021) 887-1597 STELLENBOSCH, 7599 E-mail: [email protected]

MARCH 2010

UPDATE of S A RESERVE BANK Data

Dr Johan Snyman

STELLENBOSCH

25 March 2010

SARB LEADING INDICATOR OVERALL ECONOMY

0

10

20

30

40

50

60

70

80

90

100

110

120

130

140

| 62 | 65 | 68 | 71 | 74 | 77 | 80 | 83 | 86 | 89 | 92 | 95 | 98 | 01 | 04 | 07 | 10

Source: SARB; MFA DATABASE (Economic Upswings Shaded)

IND

EX 2

000

=100

According to the SARB, trends and the slopes of the curve are more important than absolute levels. This implies that even though the line is at the same level as during the 2006/07 boom, the economy is not equally robust

INVESTMENT IN RESIDENTIAL BLDGS AT CONSTANT 2008 PRICES 1960 to 2009 (SEASONALLY ADJUSTED QUARTERLY DATA)

0

10000

20000

30000

40000

50000

| 61 | 64 | 67 | 70 | 73 | 76 | 79 | 82 | 85 | 88 | 91 | 94 | 97 | 20 | 03 | 06 | 09 |Source: SARB; MFA DATABASE

RA

ND

MIL

LIO

N

Still declining

The residential investment data are dropping and conforming to the historical pattern

TOTAL RESIDENTIAL BUILDINGS ANNUAL PERCENTAGE CHANGE 1960 - 2009 ( 3 QUARTER MOVING AVERAGE )

-30

-20

-10

0

10

20

30

40

| 61 | 64 | 67 | 70 | 73 | 76 | 79 | 82 | 85 | 88 | 91 | 94 | 97 | 20 | 03 | 06 | 09 |Source: SARB; MFA DATABASE (ECONOMIC UPSWINGS SHADED)

AN

NU

AL

PER

CEN

TAG

E C

HA

NG

E

Indebtedness rose from 50% in 2003 to 83% in 2008Q1, currently declining, but only slowly …

TOTAL HOUSING vs HOUSEHOLD INDEBTEDNESS

0

10000

20000

30000

40000

50000

60000

| 70 | 73 | 76 | 79 | 82 | 85 | 88 | 91 | 94 | 97 | 20 | 03 | 06 | 09Source: FNB; SARB; MFA DATABASE

Rm

AT

CO

NST

AN

T 20

08 P

RIC

ES

20

30

40

50

60

70

80

90

HH

OLD

IND

EBTE

DN

ESS

% O

F D

ISPO

SAB

LE

INC

OM

E

TOTAL HOUSING Rm HOUSEHOLD INDEBTEDNESS

DEBT LEVELS HAVE RISEN,BUT HAVE REACHED A PEAK

Thanks to the 5 percentage point drop in interest rates, the debt-servicing ratio is also declining from a peak level of 12% to 8%

HOUSEHOLD DEBT AS % OF DISPOSABLE INCOME vs DEBT - SERVICING RATIO

30

40

50

60

70

80

90

| 69 | 70 | 71 | 72 | 73 | 74 | 75 | 76 | 77 | 78 | 79 | 80 | 81 | 82 | 83 | 84 | 85 | 86 | 87 | 88 | 89 | 90 | 91 | 92 | 93 | 94 | 95 | 96 | 97 | 98 | 99 | 20 | 01 | 02 | 03 | 04 | 05 | 06 | 07 | 08 | 09 |

Source: ABSA; SARB; MFA DATABASE

HH

DEB

T A

S %

OF

DIS

POSA

BLE

INC

OM

E

0

2

4

6

8

10

12

14

16

DEB

T SE

RVI

CIN

G R

ATI

O

HH DEBT as % of DISPOSABLE INCOME DEBT SERVICING RATIO

RUBICONASIANFINANCIALCRISIS

GLOBALCRISIS

Building loans granted stabilised at low levels during 2009Q4

BUILDING LOANS GRANTED AT CONSTANT 2008 PRICES

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

| 70 | 71 | 72 | 73 | 74 | 75 | 76 | 77 | 78 | 79 | 80 | 81 | 82 | 83 | 84 | 85 | 86 | 87 | 88 | 89 | 90 | 91 | 92 | 93 | 94 | 95 | 96 | 97 | 98 | 99 | 00 | 01 | 02 | 03 | 04 | 05 | 06 | 07 | 08 | 09 | 10 |

Source: SARB; MFA DATABASE

RA

ND

MIL

LIO

N P

ER M

ON

TH

SHADED AREAS REPRESENT THE UPSWING PHASES OF THE BUSINESSCYCLE GOLD

BOOM

ASIANCRISIS

NATIONALCREDIT ACT

Some revival was evident in 2009Q4 in the case of mortgage advances for existing buildings

MORTGAGE LOANS ON NEW & EXISTING BUILDINGS Rm AT CONSTANT 2008 PRICES

0

10000

20000

30000

40000

50000

| 71 | 74 | 77 | 80 | 83 | 86 | 89 | 92 | 95 | 98 | 01 | 04 | 07 | 10Source: SARB; MFA DATABASE

AT

CO

NST

AN

T 20

08 P

RIC

ES (R

m)

GOLDBOOM

PROPERTYBOOM

NATIONALCREDITACT

ASIAN CRISISPRIME AT 25,5%BUILDING LOANS

MORTGAGESON EXISTING BUILDINGS

PROPERTYBOOM

The drop from a peak level in August 2006, was no less than 94%, but this decline seems to have stabilised at extremely low levels

MORTGAGES GRANTED ON VACANT LAND SMOOTHED, AT CONSTANT 2008 PRICES

0

500

1000

1500

2000

2500

3000

3500

4000

4500

| 74 | 77 | 80 | 83 | 86 | 89 | 92 | 95 | 98 | 01 | 04 | 07 | 10


VALU

E O

F M

OR

TGA

GES

GR

AN

TED

AT

CO

NST

AN

T 20

08

PRIC

ES R

m

GOLD BOOM

FIRST TIME HOMEBUYERS'SUBSIDYSCHEME

DEMOCRATICELECTIONS

ASIANCRISIS

NATIONALCREDITACT

INVESTMENT IN NON-RES BUILDINGS AT CONSTANT 2008 PRICES 1960 to 2009 (SEASONALLY ADJUSTED QUARTERLY DATA)

0

20000

40000

60000


RA

ND

MIL

LIO

NNon-residential investment has reached a peak

Growth rates are destined to become negative in accordance with the historical pattern

TOTAL NON-RESIDENTIAL BUILDINGS ANNUAL PERCENTAGE CHANGE 1960 - 2009 ( 3 QUARTER MOVING AVERAGE )

-30

-20

-10

0

10

20

30

40


AN

NU

AL

PER

CEN

TAG

E C

HA

NG

E

INVESTMENT IN RESIDENTIAL & NON-RESIDENTIAL BUILDINGSAT CONSTANT 2008 PRICES

0

20000

40000

60000

| 61 | 64 | 67 | 70 | 73 | 76 | 79 | 82 | 85 | 88 | 91 | 94 | 97 | 20 | 03 | 06 | 09 |


RA

ND

MIL

LIO

N S

EASO

NA

LLY

AD

JUST

ED

NON-RESIDENTIAL RESIDENTIAL

This graph shows that residential investment is currently smaller than non-residential investment

This graph shows that the amplitude of cyclical swings really has no regular pattern, sometimes res grows faster than non-res, sometimes the recessions in non-res are deeper than res

RESIDENTIAL AND NON-RESIDENTIAL BUILDING GROWTH RATES ANNUAL PERCENTAGE CHANGE

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-20

-10

0

10

20

30

|60|61|62|63|64|65|66|67|68|69|70|71|72|73|74|75|76|77|78|79|80|81|82|83|84|85|86|87|88|89|90|91|92|93|94|95|96|97|98|99|20|01|02|03|04|05|06|07|08|09|


AN

NU

AL

PER

CEN

TAG

E C

HA

NG

E

RESIDENTIAL NON-RESIDENTIAL

DATA SMOOTHED WITH3 TERM MOVING AVERAGE

There is a close relationship between movements in non-residential investment and the rate of increase in tender prices, the more work available, the less competition in tendering and the faster tender prices rise …

Note that tender price increases were negative in absolute terms at the end of 2009

COMPARISON: BUILDING COSTS & INVESTMENT in NON-RES BUILDINGSANNUAL PERCENTAGE CHANGE

-30

-20

-10

0

10

20

30

40

|60|61|62|63|64|65|66|67|68|69|70|71|72|73|74|75|76|77|78|79|80|81|82|83|84|85|86|87|88|89|90|91|92|93|94|95|96|97|98|99|20|01|02|03|04|05|06|07|08|09|

Source: BER; SARB; MFA DATABASE

AN

NU

AL

PER

CEN

TAG

E C

HA

NG

E

Investment in Non-Res Bldgs Building Costs

INVESTMENT IN TOTAL CONSTRUCTION WORKS, 1960 to 2009 AT CONSTANT 2008 PRICES (SEAS ADJ QUARTERLY DATA)

0

30000

60000

90000

120000

150000

180000


RA

ND

MIL

LIO

N

SISHEN-SALDANHARICHARDS BAY

SASOL II & III MOSSGAS TELKOMESKOMPOWER STATIONS

LARGE DAMS

COEGA &ACCEL-ERATEDCAPEXPROGRAM

Approaching a peak at an all-time high

Historically high rates of growth are evident, but these could fall rapidly as airports and soccer stadiums are completed

TOTAL CONSTRUCTION WORKS ANNUAL PERCENTAGE CHANGE ( 3 QUARTER MOVING AVERAGE )

-30

-20

-10

0

10

20

30

40

50


AN

NU

AL

PER

CEN

TAG

E C

HA

NG

E

Despite many infrastructural projects, the majority of BER respondents remain pessimistic

COMPARISON: BUSINESS CONFIDENCE CIVIL ENGINEERING CONTRACTORS & CONSTRUCTION WORKS ANNUAL PERCENTAGE CHANGE (SMOOTHED)

-40

-30

-20

-10

0

10

20

30

40

| 87 | 88 | 89 | 90 | 91 | 92 | 93 | 94 | 95 | 96 | 97 | 98 | 99 | 00 | 01 | 02 | 03 | 04 | 05 | 06 | 07 | 08 | 09 | 10 |

Source: BER; SAFCEC; SARB; MFA DATABASE

CW

AN

NU

AL

PER

CEN

TAG

E C

HA

NG

E

0

10

20

30

40

50

60

70

80

90

100

BU

SIES

S C

ON

FID

ENC

E C

IVIL

C

ON

TRA

CTO

RS

C W APC Smoothed BUS CONFIDENCE CIVIL CONTRACTORS

PESSIMISM

OPTIMISM

Summary (annual percentage change)

2008 2009 2010

Investment: Res -8 -9 3

Non-res 8 4 -9

C W 31 36 -3

Building costs

Haylett 14.3 1.7 5.0

Tender prices 14.4 -0.8 5.2

Reasoning underlying the forecasts for 2010

Residential: (+3%)

Prime interest rates have dropped from 15.5% to 10% p.a.

Banks have relaxed their stringent lending requirements

Consumer confidence is improving

Salary and wages grew by more than inflation during 2009

Building costs are just 2.6% higher than a year ago

The only negative influences are higher electricity tariffs and increases in property rates and taxes

Non-residential: (-9%)

Vacancies are rising, nominal rentals are no longer rising

Construction works: (-3%)

The level has reached an all-time high, yet contractors are pessimistic and various projects are in the completion stage, thus there is little scope for further growth, although levels will still be much higher than in 2000

Thank you for your attention …

Johan Snyman

[email protected]

MARCH 2010 UPDATE of S A RESERVE BANK Data Dr Johan Snyman STELLENBOSCH 25 March 2010.

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Transcript of MARCH 2010 UPDATE of S A RESERVE BANK Data Dr Johan Snyman STELLENBOSCH 25 March 2010.