First National Bank - a division of FirstRand Bank Limited. An Authorised Financial Services and
Credit Provider (NCRCP20).
Property Outlook
What needs to happen before the
next strong property
performance and how long will
it take?
October 2011
FNB House Prices
FNB House Price Index - Real and
Nominal Growth
5.6%
0.3%
-20%
-10%
0%
10%
20%
30%
40%
Jan-02 Jan-04 Jan-06 Jan-08 Jan-10
FNB House Price Index - year-on-year percentage change
Real Average House Price (CPI adjusted) - year-on-year percentage change
FNB House Price Index Growth
(Seasonally-adjusted month-on-month)1.34%
-0.24%
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
Jan-07 Jan-08 Jan-09 Jan-10 Jan-11
FNB House Price Index - Seasonally Adjusted - month-on-month percentage change
Great Depression US Debt
situation appears tame
Constrained oil supply makes
for economy-constraining
prices
Brent Crude Oil - Real $/Barrel
0
10
20
30
40
50
60
1970 1975 1980 1985 1990 1995 2000 2005 2010
$/b
arr
el
-15
-10
-5
0
5
10
15
20
%
US real GDP (q/q % ann.) Real brent crude - $/barrel
Some key economic indicators
are slowing again
Key Leading Indicators
- month-on-month % change
-2.5%
-2.0%
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10
South Africa Leading Indicator OECD Leading IndicatorUSA Leading Indicator
High household indebtedness
contstrains economic growth
Household Debt to Disposable Income
Ratio vs Interest Rates
76.8
82
40
50
60
70
80
1990 1993 1996 1999 2002 2005 2008 2011
%
5
7
9
11
13
15
17
19
21
23
25
%
Household debt-to-disposable income ratio (Left Axis) Prime Rate
SA Long term economic
growth rate trends
Real GDP Growth - 5-year annual averages
4.2
2.8 2.8
1.3
0.6
2.6
3.2
4.2
0
1
2
3
4
5
1971-
1975
1976-
1980
1981-
1985
1986-
1990
1991-
1995
1996-
2000
2001-
2005
2006-
2010
%
Real GDP Growth - 5-year annual averages (%)
Long term consumer price inflation
and short term rates trends
Long Term Consumer Inflation and Interest
Rate Trends
0
10
20
1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010
%
Consumer Price Inflation (PCE Deflator - y/y % change) Prime Rate
FNB Cap Rate Index
FNB All Commercial Capitalisation
Rate Index vs Long Bond Yields
60
70
80
90
100
110
120
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Cap
rate
In
dex (
Q1 2
001 =
100)
6
7
8
9
10
11
12
13
Yie
ld (%
)
FNB All Commercial Capitalisation Rate Index (Q1 2001 = 100)
Government bond yields 10 years and longer (%)
Wide replacement cost gap has
slowed building activity
Full Title Property Replacement Cost Gap
21.7%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Difference between the average full title building replacement cost and theaverage existing full title property value, expressed as a percentage of averageexisting full title property value
Market still unrealistically priced –
homes too long on the market
Average time that a property
is on the market
15.1
0
4
8
12
16
20
2005 2006 2007 2008 2009 2010 2011
We
ek
s a
nd
Da
ys
on
th
e M
ark
et
Weeks and days that the average property is on the market before being sold
Smoothed
FNB Valuers indicate weak demand
relative to supply
FNB Valuers Residential Market Strength
Indices
44.79
47.53
57.95
25
30
35
40
45
50
55
60
65
70
75
Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11
Ind
ex
Scale
0 t
o 1
00
FNB Valuers' Market Strength Index (Scale 0 to 100 where 50 indicates a balanced market)
Demand rating (scale 0 to 100)
Supply rating (scale 0 to 100)
The Long Property Cycle (Real
House Prices)
Affordability of housing (Using Absa HPI)
0
50
100
150
200
250
300
1970 1975 1980 1985 1990 1995 2000 2005
Aff
ord
ab
ilit
y I
nd
ices 2
000=
100
Average house price/average income ratio (Index 2000=100)
5.5 year
Boom
Period
8.5 year
Boom
Period
15 year Stagnation Period
(Abnormally Long?)
Commercial property tracks residential property
with lag (243% incr. since Q1 2001 vs Residential
209%)
FNB All Commercial Capital
Growth Index vs Residential Price Growth
-30%
0%
30%
60%
90%
2002 2004 2006 2008 2010
Ye
ar-
on
-ye
ar
%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
Ye
ar-o
n-y
ea
r % c
ha
ng
e
FNB All Commercial Average Property Value - Year-on-year % chnage
Average House Price - year-on-year % change
Returns in 2011 starting to
weaken again
Total Returns (%) by Property Type
(Source: IPD)
0
5
10
15
20
25
30
35
40
1995 1997 1999 2001 2003 2005 2007 2009 H1 2011
% T
ota
l re
turn
s p
er
sq
uare
metr
e
All Property Office Space Retail Space Industrial and Warehouse Space
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