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Monday, August 1, 2005
Check the mix

I recently saw a brief article by a journalist whinging about high house prices. He essentially said that the rise of 30% in property values was caused by greedy speculators, who were therefore preventing first time buyers from getting into the market. For ‘first time buyers’ read the poor and disadvantages. The article, like many these days, had racial connotations. It reminds of the complaints some time ago about foreigners buying properties in SA, and that it should be stopped — all nonsense, really.

I don’t have time to research pricing in detail, and I won’t go into the history of depressed property prices because of the country’s previous pariah status and that many people were emigrating, while still others were too fearful to put down roots and buy into the market.
But what’s going on now, apart from an historic price correction, is a reflection of a more vibrant economy and a society that feels confident enough in the future to start putting its roots firmly into SA soil. Many low-cost housing initiatives are also contributing to the boom. Low interest rates are encouraging more buyers. On purely supply/demand economics that must put prices up.
Underlying this are other factors that also have nothing to do with speculators. Firstly the government takes 14% of all new property sales, home improvements and additions in terms of VAT on the costs of labour and materials. It also levies up to 8% transfer duty on sales. Legal fees and bond registration fees also get a chunk of the increase because they work on a sliding scale.
The second factor concerns monopolies. The cost of timber for roofing was increased about 16% the beginning of this year. According to research annualised rates of increases for other materials were copper (21%), steel (20%), stock bricks (19,6%) and cement (13%) — largely caused by a combination of supply/demand forces and monopolistic practices.
So forget greedy speculators and foreign interference. It is far more a simple matter of supply and demand. The more people want of South Africa, the more votes we are getting. That’s good for everybody, even those at the bottom of the heap. By Nigel Benetton

Copyright © Insurance Times and Investments® Vol:18.4 1st August, 2005
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