John Loos on the Property Outlook

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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