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“SA lacks a proactive monetary policy to help the economy get back on its feet” – Steven Nathan
10X founder Steven Nathan shares his pearls of wisdom on a number of topical issues in the financial markets with a global house price boom being experienced in a number of jurisdictions around the world. He elaborates on why this may be the case and the reasons for South African property prices lagging our global peers on a relative basis. Nathan also touches on the top job done by central banks around the world, keeping interest rates low in order to revive the global economy following the onset of Covid-19. After the events over the weekend, property rights and expropriation without compensation were other topics touched on. – Justin Rowe-Roberts
On the global house price boom happening around the world:
Intuitively the sort of knee jerk reaction is that it is surprising because of Covid, we expected a lot more of a negative economic impact globally and we haven’t seen that. To the credit of central banks, it’s really been the proactive nature of central banks that have aggressively supported the economy. And one can’t underestimate how aggressive it’s been. It’s been unprecedented and it’s worked. One of the big impacts is that its lowered interest rates globally. So interest rates are much, much lower. And the vast majority of people who buy a home have to finance that via mortgage. The lower interest rates are, the more affordability you’ve got. Your money stretches further. So when interest rates fall, you can afford to buy a more expensive property for the same monthly repayment. We know that interest rates are at record lows. Also, I think what’s important with interest rates is sort of the bank margins. In South Africa, although our interest rates are at record lows – certainly lows over the last 50 years, we have a Repo rate at 3.5%. So that means that the commercial banks can borrow from the Reserve Bank at 3.5%, but the banks have a high margin. They put on another 3.5% to get their prime rate.
So if you look globally, those bank margins are also very high. So there’s a bit of a double whammy that we have in South Africa because we’ve got higher bank margins and we’ve got much higher interest rates than they have elsewhere. And even if you look, for example, at the UK and the US, they have what we call negative real interest rates because inflation is higher than interest rates. So that’s actually very positive to stimulate demand for housing. Also what we’ve learned in the pandemic is that people’s homes have become more important because your home is not just a place where you live. It’s become part of your work life as well. So you’ve had people sort of trading up, buying bigger properties. So that’s also been been a positive for it. Unfortunately, in South Africa, we’ve missed out on that because I think in addition to not having the benefit of low interest rates, the sentiment in South Africa is not great.
On South African’s becoming poorer relative to global peers:
I think it is relevant. It’s relevant in several areas. Let’s put it this way – I can’t think of a reason why it would be a good thing. So let’s say why could it be a bad thing – having an asset is really important because previously we’ve spoken about just the social impact. If you have an asset, you have something to protect – you have something to fight for. And we’ve seen that in the insurrections and uprisings. People that had something to fight for was the taxi industry for example. So having an asset is really important for social stability and as you say, creating a middle class. But it’s very important for progressing in society from a financial perspective, because if you have an asset, then you can borrow against that asset to buy another asset or to invest in another asset. A classic example would be a home.
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