Top End of the Market Changes
Absa’s latest Property Trends Reports reveals that the average price of houses in the top end of the market has been rising and the improved economy is to blame.
Real disposable income growth has been 4.7% per year since 2000 and 6.6% in 2006, according to Absa and John Loos of FNB says that 5% economic growth is driving strong growth in higher income purchasing power.
More people with high levels of purchasing power mean higher demand. The fall of interest rates after 1998 and then again after 2002, meant an improvement in the affordability of the luxury end and a huge surge in demand.
Foreign Land Ownership
Agriculture and Land Affairs Minister Lulu Xingwana said that the government welcomes open debate on the issue of foreign land ownership and that this particularly applied to the question of whether or not proposed new regulations on land ownership should be put into effect retrospectively.
She said: “We will be guided by the submissions and recommendations coming from South Africans in this regard and the matter is open to debate, but as we sit now we have a Constitution that we must respect, we have laws that we must respect.”
The minister was speaking at the release of a government-commissioned report and recommendations on the development of policy regarding land ownership by foreigners in South Africa. The panel commissioned to do the report made 10 recommendations including the possible outright prohibition on foreign ownership of South African land.
Integration of the Housing Market a Necessity
Housing Minister Lidiwe Sisulu said that a single integrated housing market was “absolutely necessary” to normalise the South African housing market and link the second economy to the first economy.
Sisulu said that the value of property in the second economy, mainly in black townships, had become excluded from the mainstream economy ant this had to change. She also said that South Africa found itself with two different and unrelated property markets and it was in the country’s best interest to link them.
She argued that there was value, or “dead equity”, in the second economy and South Africa ignored this “at its peril”. This equity, which excluded the so-called tribal areas, had in 2004 been estimated to be valued at R68,3-billion. However, “the most recent estimates were around R600-billion, something which must not be trifled with”.
Bonds weaken
After disappointing consumer inflation data for July, South African bonds weakened by almost as much as 10 basis points last month.
The key government R153 bond was at 9.190% from its previous close of 9.120%, while the short-term R196 was bid at 9.450% from its previous close of 9.375%. The longer-term R157 bond was at 8.470% from its previous 8.415%. The rand was bid at 7.2596 from its overnight close of 7.2946.
A local bond trader stated that the CPI data was pretty bad which caused bonds to weaken by several points. He also said that there is a limited supply in the market at the moment so they should come back a bit.
Mortgage loans not affected by New Credit Act
Mortgage lending showed no let-up in the latest credit growth statistics, and rose by R17.3bn last during July. The new National Credit Act, which was introduced in June, requires banks to add more stringent criteria when giving loans. But not even this could slow down approved mortgaged loans.
Mortgage loans grew by R9.5bn a month in 2005, to R13.1bn last year, according to Kevin Lings, economist at Stanlib. The average monthly increase has been R12.97bn for the first seven months of this year.
National Credit Act Prevents Property Market Crash
The South African home loan market is faced with many challenges, including the US home loan crisis, the new National Credit Act, rising interest rates, the deeds office strike and the winter seasonality. But not even all of this could cause a total standstill of the property market in our country.
According to Jack Trevena, MD of bond originator BondExcel, the US home loan market is different to the South African home loan market. In the US some sub-prime lending has become a multibillion-dollar industry that is now spinning out of control. Sub-prime lending is an unusual and rather unsuitable term for home loans granted to individuals who, under any normal credit policy, would never be able to obtain a home loan. Sub-prime mortgage lenders offer a much higher rate than the prime rate and consumers are struggling to keep head above water.