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Property Talk

Property Talk

Author: Andrew Wassenaar
Date: 2016-03-11
How indebted are South African households and how is this currently changing? Both Absa and FNB recently released reports on South African household credit and mortgage advances, which provide great insight into what is happening with respect to household indebtedness. The value of all outstanding credit balances of South African households, a good measure of total household indebtedness, grew by 4,6% to R1,485.1bn at the end of January 2016. Of this debt, 75.3% of it is classified as secured, and this component only grew by 3,9%. Of interest to us are the two major components of secured credit balances - mortgages and installment sales balances. The latter make up 22.2% of secured balances and relate mostly to vehicle finance. What is amazing is that installment sale balances only grew by 2,4% year-on-year at the end of January 2016 which would be in line with the declining new vehicle sales volumes for the same period. Higher interest rates and tougher economic conditions are starting to translate in fewer people committing to installment sale purchases - typically deciding to hold onto their existing cars for longer. Weak consumer confidence has a dampening impact on durable consumer goods consumption and the figures are starting to show this.

If we focus on total outstanding mortgage balances, both household and corporate mortgages, we see that this increased to R1,232bn at end January 2016. Corporate mortgage balances grew a lot faster at 9,6% to R364.2bn. Although household mortgage growth, which we as estate agents selling residential property are most interested in, grew by a lesser 4,5% to R867.8bn, it is very interesting to appreciate that households account for 70,4% of total mortgage balances. It is also interesting to note that household mortgages make up 58.4% of all household credit balances or debt. For me this is the "good debt" as it finances property which households can add value to over time and becomes a great store of wealth. The share of mortgage debt is however down from a peak of 70,2% in 2009 and still lower than the 62,4% level of 2001. Our overall household debt to disposable income has decreased from its peak of 88,8% in the first quarter of 2008 to its current value of 78,3%. While we require homebuyers to be able to raise mortgage finance in order to buy properties, for the overall health of the economy a household sector which is less vulnerable to economic shocks (i.e. a less indebted household sector) is desirable. To achieve this both disposable income has to grow on the one hand and indebtedness has to decline on the other.

Because the volume of bonded property transactions tracks the South African Leading Economic Indicator so remarkably well over any given period of time, it helps to study the leading indicator to get a sense of where mortgage growth is expected to go to and by default the volume of property transactions in the economy. The leading indicator is currently declining suggesting that a decline in bonded registrations is on the horizon. Mortgage originators such as Ooba are going to have to work a little harder and smarter to keep sales up. Currently Ooba's effective approval ratio is 69,2%. The average home loan pricing is currently at prime plus 0,33%. Remember the good old days when prime minus 2% was the norm. Competition between the large commercial banks is however vibrant and Standard Bank are dominating the mortgage landscape with 33.84% market share, followed by Absa at 25,5%, FNB at 20,24% and Nedbank at 14,3%. Investec, as an aggressive private bank, has grown its mortgage book by 25% over the last year and is currently at a market share of 5,6%.

For further information and an interactive analysis of this article follow my blog: andreaswassenaar.blogspot.com

Andreas Wassenaar

Principal - Seeff Dolphin Coast

Cell: 082 837 9094

andreasw@seeff.com