 Good evening and welcome to episode 373 of the private property podcast. I'm your host, it's a Friday edition of the private property podcast. If you're joining us for the first time, welcome to it. You're tuned into the only daily property talk show in South Africa that helps you on your property needs. And all our regular viewers on Facebook, on Instagram, as well as on YouTube, welcome to it. You know how we do every single weekday. You and I have an appointment at 7pm, where I'm always in the conversation with a property expert who helps us navigate our property decision. And it doesn't matter where you are on your property journey, this is the show that helps you along the way. And talking about shows that help you along the way, you know that we can also tune into our incredible other shows across private property social media pages. It's a Friday, so you can look forward to Chad bringing you the Home Shoppers show. And that also comes to your screens every single Monday at 8pm. And every Tuesdays and Thursdays, Umbalinoa Co brings you the farming podcast tackling all things agriculture. So for all of you at home, we've got green fingers. That is a show that you certainly do not want to miss out on. And on Wednesdays, Estie Clarkson takes you through the first time home buyer show, where she's always in conversation with people who've not only walked that first time home buying journey, but have gone on to grow their property portfolios from strength to strength. Well, those are some of the great shows that you can tune into every single weekday right here on the private property platform, private property social media platforms rather every weekday at 8pm. Now as you know, I know that of course today was the real estate industry summit. Wanted to find out from you at home where you attending the virtual event. And if you were what was some of the most interesting sessions and that you attended earlier on today do let us know down here below. I certainly want to find out from you at home, which ones were some of the key sessions that you attended. Now this evening we're going to be looking at something that I'm very, very excited about. But before we get to it, you know that we are running our great competition where you send a chance of walking away with 500 rands in cash every single weekday right here on the show. And all you have to do to send a chance of walking away with that cash is to make sure that you comment on the pit post on our social media page that is on the Facebook page. And if we call your name drop us a message down here below and you walk away with the cash prize. We've got 500 rands in the money bags. I'm excited to see who the lucky winner is later on is going to be. I hope you're watching and of course ready to drop us that message and really end off payday weekend with an extra 500 rands in your bank account. I think that's certainly a great way to end off the week or certainly the end of the month. But this evening we're having a conversation with somebody that I I know of far too well. I was even saying to him that I'm actually very familiar about you know who it is the right that he does because this is one of the data sets that certainly was a property professional you look at at school. This is one of the data sets that we look at. So when we talk about understanding data making data driven decisions this is literally one of the resources that we tap into on a quarterly basis. We're looking at the state of the property market report and I'm in conversation with Irwin Rhodes who is the CEO at Road and Associates. Irwin good evening and thank you so much for joining us on the show. Good evening. Now I think Irwin when I look at you know the road report I'm very familiar with the with the road report but for purposes of the people at home who may not be you know as familiar with what it is what it measures helps take us through what is the road report and what exactly goes into what we then sort of read up on a quarterly basis when we go through the report. Right thank you very much for the question. My firm is the name of my firm is Road and Associates or ODE. No H10 and we have been in existence for 33 years and we are best known apart from being a value is property value is we are also producers of the road report. Road report on the South African property market. It is a full title and what this report really does is it gives you the state of the property market in South Africa and how do we do it. We have a panel of experts in every city every metropolitan city and also in some smaller cities like like Polakwani and Nelspray and well East London is not small we have a panel in East London in Port Elizabeth sorry I'm not using the new names at the moment still boomfontein even George we have a panel nowadays and cake down and and because the firm is 33 years old the data that we collect in this way goes back 33 years plus because I started doing these surveys even before I started my company. The way we do the survey is we ask a panel the same question every quarter for instance what in your opinion is the current market rental rate for grade A office rentals in the CBD of Durban that would be an example or for grade B offices in Durban or for grade C in the CBD of Durban and so forth and so on. We've got hundreds of nodes in the country that we track in this way and also industrial townships that we track in this way. Then we do capitalization rates those of you who are not a famous capitalization rate is nothing but the income yield of the first year divided by the market value or the price that you pay assuming the properties fully let at market rentals. We track operating costs we track house prices we track flat rentals country wide and so forth and so on. So it's a very wide array of of areas physical areas to graphic areas and property types and grades of properties types that we track and as a consequence I'm told it's become the Bible of the banks for instance when they receive we when they have to calculate market rentals or see whether market rentals are market related. Even the Department of Public Works apparently is using it as a as a standard against which they measure with a new new leases that they sign is market related or not and hopefully that eventually will put an end to the nonsense of the Department of Public Works. I'm talking about the national one now. I think that's already come to an end where they were signing rentals at double the market rentals rate. So that's what I think that from a publicity side this is what we're best known for but we also have other publications. We've got the six year forecast application where we forecast the crucial the crucial variables things like market rental rates capitalization rates for the various property types including offices industrial and shopping centers and so forth. So it's a very wide ranging survey that we do so it's become a standard in the market for serious investors. You know I must say I am not a particularly big fan of consuming industrial property data just as a general even handling industrial property case studies I often complain about a lot of my social media platforms. But of course this is data that we do practice especially if you're in the industrial property at space. And I'm interested to find up from you over and I mean the big thing that I was even saying to you before we came on air is a lot of the views at home and even with the show we focus quite a lot on residential property. A lot of the viewers are either property investors or certainly looking to go into property investment and really want to get a good sense of what the market is looking like at different points. I think before we even look at the latest data and what it's telling us given that you've been in the industry and been doing this work for literally longer than I've been alive I'm keen to hear quite literally. I mean I'm keen to hear from you what have been just some of the general trends that you've seen when it comes to residential property in particular. And especially those who are looking at it from an investment perspective. And so we're looking at you know landlords and sometimes it can be sort of your more DIY landlords or your more institutional landlords whatever just being the general patterns and trends that you've picked up over the three decades plus and that you can share with us. I think the first trend that comes to mind is that in South Africa our flats and our houses are becoming smaller. That's a long term trend. It's been a lot with us for quite a number of at least one or two decades. But as of late I think it's accelerated the trend is accelerated and you'll see that the developers some developers are developing and marketing or converting old office buildings and then creating flats of even as small as 20 square meters or up to 40 square meters something like that in order to make it more affordable for people to stay in the CBDs because this is that the big slogan at the moment you know the not so well off must be able to stay close to work in the CBD. Now that is such an important thing is a different question because what with modern technology like this Zoom session that we are having you can sit in the South Pole and on the end in the Antarctica and as long as you've got a broadband you can actually do your work. But of course there are works. There's types of work and types of work. So it all depends on what exactly you are. If you are a clerical type of person then of course distance work could or can or does work. But if you are a policeman or a nurse or something like that and you've got to be on the spot at a certain time and you've got to travel 20 30 kilometers you know it's it's expensive. So that is a rationale behind this trend of converting office buildings to residential and then in the process quite often make it very small. Of course from the developers point of view when you have very small units residential units in a block of flats say your rental per square meter is higher for the smaller units than for the larger units. So that's how they make these developments making them pay from a financial point of view. That is that is the most important trend I think of the past number of years. Yeah the other trend is more of a cyclical nature in real terms health prices peaked in South Africa as in most of the developed world in 28 29 thereabouts in South Africa 29 and then we had the crash big financial crash and then prices started falling like a stone and then half way through the fall it stopped and started moving sideways and now it's once again real terms these health prices are coming down. I know what I mean by real terms is after having taken out building cost inflation right so we're looking at it from a developer's point of view how attractive is it for the developer to develop given what you can get in the form of rentals or when he sells it the sales size rate per square meter of the of the units he's selling compared with the building cost and also the cost of the land. Yeah so I think those are the two most important trends and and from a cyclical point of view bear in mind that we had a boost in health prices recently until a few months ago because of the shop drop in interest rates to counter the the virus effect but this is not going to last forever and this is a dangerous signal if you are a marginal buyer and you can only just afford that monthly installment because of the very low interest rates you run the risk that when interest rates start rising and they will that all of a sudden this house or unit of yours will become less affordable and so careful for overreach it's we are living in uncertain times nobody knows or what's what's going to come next I mean just to give you another example for all we know next year we're going to have a fourth wave of the COVID and I mean yeah I think they were we heard that the Minnesota health was actually projecting that where we'll say in the early stages of a fourth wave and if things sort of continue the way that they're continuing we could very easily be looking at a fourth wave during the festive season similar to what we experienced you know last year in the festive season where they ended up having to tighten up restrictions and even more because of how the numbers were escalating so I certainly do agree with you that the the marginal buyers and they're the ones that I'm often most worried about because oftentimes when you look at the first time home by a market and certainly when we looked at it you know as these interest rates have been going down in the past 18 months a lot of the praise has been that we're seeing more people being able to access the first time home by a market and for me it's also alarming that so many people are able to access it which is great for them and the ability to access it but the reality is these interest rates are going to go up and I often wonder whether they've budgeted for the increase and whether they'll still be able to afford it given the increase and I think that's probably such a big area of concern even as much as banks are saying you know they really took the strict on the affordability but we know that they're also trying to to have business and we'll look at the numbers and probably be able to say yeah we are making a call that they'll be able to afford this even though if you were to set it up as or look at it from the interest rate that we had last year January it would actually put quite a bit of pressure in the household overall budget. Yeah you're absolutely right about our banks. I must say as a generalization I must hand a bouquet to our banks they are as opposed to some other banks in some other countries are very responsible people. That's why our crash in 2009 wasn't as bad as saying in the US or UK because our banks are very conservative when it comes to loan funds but having said that for the so-called affordable market that is where I was up to say 700,000 rents thereabouts between say 500 and 700 800,000 thereabouts. It's a so-called affordable market depending on your definition they are actually handing out 100% bonds which is very very dangerous. But on the positive side we must take off our head to our banks I understand their policies as a generalization their policies are to assume that even today that when they when they accept the passing of a mortgage bond on a house they assume that interest rates will be 2% it's points higher than at present. Now which is I think that's a very responsible way of dealing with this. I am this evening in conversation with Irvin Road who is the CEO at Road and Associates. We're looking at the stage of the property market report and of course we are going to be finding out shortly who the lucky winner is of the 500,000 in cash. I want to find out from you at home you know and especially for the property investors and as I was saying earlier that one of the big things is that we are you know using different kinds of data using different kinds of sources of information to be able to make better decisions about our property portfolios and even the different property businesses that we have early on today. We had the real estate industry summit that took place I want to find out from you at home were you in attendance if you were which was some of the key sessions that you enjoyed and what were some takeaways for you at home but in the meantime let's take a quick look at who the lucky winner is this evening. And that lucky winner is Umenzi Boutelesi. I do hope that means he is indeed watching us live right here on the show means Boutelesi. I know that I see you quite often in the comment section watching the show so do drop us a message down below 500 rands is up for grabs it's a payday weekend so it's certainly a great way for you to have a little bit of extra cash in your pocket. And as we continue our conversation about the stage of the property market report in South Africa with Irwin Rhodes I want to find out from you and I think when we look at you know the the investor you know the investor market as we're saying earlier and I'm keen to hear from you what I mean some of the you know behaviors that we've seen when it comes to the investor market and it doesn't have to be just sort of in this quarter because again I quite appreciate the benefit of you having sort of tracked it for quite an extended period of time and seen the different you know patterns along the years what I mean some of the behaviors especially for more honestly the more individual or small scale investors opposed to more of the institutional you know bigger investors because I think they also playing in a very different game completely whereas your you know let's call them DIY investor DIY landlords almost play a relatively different game or even some of the general behaviors and trends that you've picked up and with how those kinds of investors have sort of played it out and those who've perhaps you know you stopped investing in property and maybe you know decided to even offload some of the assets and for whatever reason over the past couple of years and if you could just share some insight on some of the behaviors and trends that you've seen with that particular market. Yeah what was the dropping of interest rates last year of course what we saw is two things first of all we saw that house prices rallied a little bit it was a mini mini boom that we had and of course at the same time the number of sales also went up so your estate agents were very happy they were doing really well at that stage now it seems that it is worn off and those who wanted to or can or could afford have done that to buy their home and we see a drop off in the number of sales and we're seeing house prices decelerating sharply again as you would expect given the fundamentals and by fundamentals I mean given the economy. The economy is in dire straits we know the fiscal is in a corner we know about ESCOM and we know about the SOEs and and and and as a result of which the big question that you can ask from an economic point of view and please the property market is driven by the economies as simple as that. The big question at the moment is by when will it be 2022 or 2023 or 2024 will the GDP real GDP be to the same level as what it was in 2019 before the before the pandemic started. That is a big question and and of course like all futures it's it's unknown and uncertain. So you have two camps at the moment you have amateur investors if I may call them that we think well prices are so low now in the real terms now it's a buying opportunity and I'm sure they are some of them buying at the moment and then they are the others and I'm one of them not that I'm an active investor but from my research I think the worst is to come. I think values and rentals will start going further down over the next few years another two years or so at least depending of course on your on what's going to happen to the economy in general that is the key that is the key if you knew what's what's going to happen to the economy and whether we will be forced to ask IMF to give us a loan and these loans are always they always come with all kinds of strings attached right. Exactly. Loan unfortunately think we're actually doing the exact thing in applied macroeconomics where you look at you know the the effects of having some of these international organizations loaning money especially to the to the to the global south and various developing nations and the after-effect that that's had not just to the the economy at large but to the real estate sector in general and we look at different examples we look to you look at a zoom you look at even a Mozambique and a few others you know within sort of static and and and kind of way up with where South Africa could potentially be given different kinds of scenarios and I think that's an important thing to always be on top of because as we as as you've pointed out that with futures you never quite know where it's going to be going and that's why it becomes so important to be able to track different data sets and try to make sense of it as much as possible as if we're really getting some love on our social media pages months of Victoria Queen Taco and that they are going to have a saying happy long weekend buffet to it's not quite a long weekend we are voting on Monday I do hope that about do you don't have specific days go and vote on Monday so let's not quite treated like the normal long weekend because our normal long weekend you can go out of town this isn't a going out of town long weekend you must stay in town so you vote in your of course local area that's quite an important one and quite quite a bit we've got a question here from Gloria Whitfield saying just joined Laura from Port Elizabeth which region is ahead with sales and you know the particular province in South Africa and I think broadly because I know you probably don't have that data right in front of you Owen when you look at just the general sales trends and sales data I know that Western Cape you know tends to perform relatively well in terms of the the amount as opposed to necessarily the the the number of you know units being sold but what have been just interesting sales data around the country even in the past three decades when you observe it you know that is that's quite an interesting one I still remember when I was a young man working for a mutual and we are now talking about the series the 80s late 70s early 80s when you transferred somebody from Cape Town to Johannesburg you had to increase that staff members housing allowance because all this much higher in job work than in Cape Town and now it's the other way around now it's all around I can actually put the date to it when it started changing when and that is more let's the middle 80s when things started that was after you you may recall those of you old enough that we had we had this wonderful gold boom that ended in 1980 and that drove the economy for another few years and it was a wonderful time and and with it property prices shot through the roof and yeah and then thereafter of course the gold price and other commodity prices like say copper and or whatever started decelerating in real terms and that's very important for South Africa because South Africa is primarily an exporter of commodities and commodities in terms by the way soft commodities like Milly's maize what corn whatever the Americans call it so in other words it also includes fruit stuff so from that time more less this is my my personal estimate that from that time the turbo economy did less well than the Western capital economy because the Western capital economy is more diversified and less dependent on a booming on a booming commodity market and I could clearly see it in in a kept on CBD and surrounds we now call it the the kept on a bowl the city bowl that's a term we nowadays use that this and also around at the Atlantic seaboard thereabouts our prices have had increased incredibly from the mid 80s onwards and the string just continued and throughout and since 1994 it seems that the trend had accelerated in fact because then there came a political aspect to it as well the perception is now that the Western Cape and Cape Town itself is better managed than the rest of the of the country so the Western Cape including the South Cape and Cape Town and the Indian vines has become a popular place to to retire and what with modern communications one guess I haven't got data on it but I guess that many a person has convinced he's her boss that it's actually better for him or her to work from from from from job and do zoom every day with his boss so so in a nutshell yes the Western Cape and kept on especially our house prices here have become very expensive relative to the rest of the country that's a fact the the problem is our ever that there's a limit to a thing like this you can't have a constant growth rate of say 6% per annum for health prices in the Western Cape and only 3% in the rest of the country because sooner or later houses become unaffordable yeah at those growth rates and in them this wonderful market that we call the free market rebalances itself you know so I think Cape Town I mean Cape Town your prices are at a level where I think even analysts are saying look it's unsustainably high and the reality is you keep pushing it higher and higher or it keeps sort of going higher at some point they're only so many people certainly from a local perspective now let's let's almost for a second not consider you know overseas the overseas market the only so many people who can sustainably be able to afford price points and and then what's going to happen and even those who currently have them now we know that quite a significant percentage of them is drill income households and it's also you know incomes that are already under pressure so it's not this automatic you know they have quite a lot of money or access you know capital lying around because we're also very aware of what income levels and income price points in South Africa are at and so it really isn't sustainable and it's unfortunate that they've they've continued to escalate at the rate that they've escalated and and many of us mean like waiting for for it to price to like price correct and and it's more often than not is it's a matter of time about when is that going to happen for the local markets because we know that if you look at you know markets and other part of the world that price point still works very well for them so I think it is one of those things where we cannot pet ourselves in the back when you know a Cape Town is is unsustainably that much higher than other parts of the country in ways where one could argue you can't quite justify it you know and and others would be like no it's justifiable for different sets of reasons but I think when we kind of take a step back in a relatively realistic sense I mean you were saying this earlier that one of the things with residential properties is that they're getting smaller and smaller and smaller even in Cape Town a lot of these developments are smaller and smaller and smaller we're seeing micro apartments that are costing a ridiculous amount per square meter in ways where we're also just saying this is not sustainable right and and I think it's going to be interesting to observe what's going to be happening in the next couple of years particularly to that market and as we wrap up I actually want to find out from you what your projections are for the residential property market say in the next three to five years and one of the things that you already pointed out is we know that registrates are going to to go up and and that's just one of the things where if we if the marginal buyers who kind of just got in they are very likely going to to be in a very dangerous you know position unless their income kind of goes up or they're able to cut out in their budget other things for them to be able to afford still servicing that home loan facility afford the escalating rent you know rates and of course the levies because I think that's also the other reality where it isn't dependent on interest rates you know rates keep going up or certainly and it's going up in ways that has put a lot of pressure on us as home owners levies are also you know doing the same way I'm came here from you what is some of your projections for the residential property sector in the next three to five years well as I said before it's driven by the economy so give me your your estimate of what the economy will do over the next two to three years and I can tell you what will happen to the market to the property market but let's be practical now my view for what it's worth is that the economy is facing period of stagnation for many years to come because we've got to rectify this the ship that was near near capsizing and that's going to take time it's not going to you know you're not going to do that overnight it's going to be long hard work and in the process we're going to have many demonstrations in the streets et cetera et cetera I mean for one thing the government will be forced to to put a damper on on any salary increases in the public sector and we know that public sector is overblow is that there are too many public sector employees we know that compared to other countries so it's quite possible and the government should actually reduce its its salary bill and and one of the ways of doing that is to reduce the number of employees civil servants so what I'm trying to say in a round about the way is that not only jobs are on the line but those who who retain their jobs their salary increases in real terms would go backwards in other words with inflation of say 5% and you get a 0% increase in your salary or wages I mean obviously you're going to have more and more trouble to make ends meet as a consumer so I appeal to everybody who's listening please guys live been within your means don't don't don't use debt to buy food you simply have to cut your your expenditure to stay within your budget don't make it because we could be facing tough tough times ahead of us and the implication of that is is that property wise places of houses and we were speaking we're talking of houses now places of houses with no real terms no other after deducted inflation will keep on declining especially of course when interest rates start rising and who knows how high interest rates will go we know that the rest of the world has had ridiculous 0% interest rates over the past decade and longer and and this is of course not sustainable sooner or later and we already see it in many countries around the world interest rates have already started rising so yeah tough times are lying ahead and I'm sorry I'm just a messenger please don't decapitate me you know everyone who's saying tough times are lying ahead actually reminding me of and I know you wouldn't know this for instance that there's a social media video that goes around that says that tough times tough times never last only tough people do and unfortunately you know from you we're getting a sense that tough times are going to last and we need to buckle up and best prepare ourselves for it over we're going to leave it there this evening. Thank you so much for joining us on the show and that is urban road who is the CEO at road and associates repping up the Friday edition of the private property podcast with myself was a man don't walk my law men's bootleysia unfortunately didn't drop us a message down here below the team is let me know I think this is probably the one time he decided not to watch the show and he gets to be a winner so that it is I'm actually like I'm hacked on his behalf because I know that he's usually you know tuned in every single evening and dropping us a message but that is where we're going to leave it this evening. Thank you so much for tuning in for myself as I'm going to walk my law I'll be back on your screens on Tuesday evening. I do hope that you don't treat this as a long weekend go out there and vote on Monday and you and I are going to be back on Tuesday at the same time until then hoping you're staying home and staying safe.