Property Sector Overview
Category Market News
Based on statistics supplied by Lightstone, there were more than 6,1 million residential properties in South Africa with a total value of R4,16 trillion in the second quarter of 2015. Of the more than 6,1 million properties, about 2,18 million (35,5%) with a total value of R2,29 trillion were bonded and 3,96 million (64,5%) with a total value of R1,87 trillion were non-bonded (see relevant table at the back of the report).
The General Household Survey 2014, published by Statistics South Africa in June this year, provided some insight into housing conditions in the country in 2014:
• 79,4% of a total of 15,602 million households were living in formal housing. Formal housing refers to
structures built according to approved architectural plans, i.e. houses on separate stands, flats, apartments, townhouses and rooms and flats in backyards.
• 12,9% of households were living in informal housing. Informal housing refers to makeshift structures not
erected according to approved architectural plans, e.g. shacks in informal settlements and backyards.
• 55,3% of households living in formal housing, fully owned their properties, with 10,6% that partially owned
their properties (financed by and not yet fully paid off to financial institutions) and 21,7% renting the properties they were living in.
• 15,3% of households were living in RDP or statesubsidised housing.
Levels of residential building activity improved in the first eight months of 2015 compared with a year ago,
but growth remained well in the single digits over this period. In the planning phase, as reflected by the number of building plans approved, as well as in the construction phase, i.e. housing reported as being completed, activity remained largely subdued along the lines of the past 6 years against the background of economic, household finance and confidence factors. Over this period these levels of building activity were well below those of 2005 07, when the economy and real household disposable income were
growing strongly and interest rates were relatively low.
The number of new housing units for which building plans were approved was up by 6,8% y/y to more than 41 000 units in the period January to August this year. This was the net result of growth of 10,1% y/y in the segments of houses less than 80m² and flats and townhouses, whereas the segment for houses larger than 80m² showed a small decline of around 1% y/y in the eight-month period.
The number of new housing units constructed increased by 7% y/y to more than 25 200 units in the first eight months of the year, which was largely driven by the two categories of houses, which recorded combined growth of 14,5% y/y to an overall total of more than 18 000 units. However, the segment of flats and townhouses registered a contraction of 8,1% y/y to about 7 200 units built in January to August
from almost 7 900 units built in the corresponding period last year. It should, however, be kept in mind that there is normally a significant time lag between the planning phase and eventual completion of large housing projects.
Building confidence, based on the BER’s building confidence index, declined for the third consecutive quarter in the third quarter of 2015 to a level of 44 index points from a recent high of 60 in the fourth quarter of 2014. With an index reading of 50 representing confidence neutrality, the majority of survey respondents indicated that business conditions in the building sector were unfavourable in the third quarter. This decline in building confidence was mainly driven by markedly lower levels of confidence in the sectors of building material manufacturers and retailers. The building confidence index measures prevailing business conditions in the building industry sub-sectors of architects, quantity surveyors, main building contractors,
sub-contractors, manufacturers of building materials and retailers of building materials and hardware.
The variable mortgage base interest rate is 9,5% per annum after being raised by 25 basis points in July this year, implying that the mortgage rate has increased by a cumulative 100 basis points since late January 2014. The impact of changes in the mortgage interest rate is reflected in the relevant tables at the back of the report, presenting monthly mortgage repayments for various loan amounts at various interest rates, as well as mortgage loan amounts based on various fixed monthly repayments at various interest rates. These calculations are based on a 20-year repayment term.
The residential mortgage market showed somewhat higher year-on-year growth up to the end of September compared with previous months this year, mainly as a result of the base effect of slowing growth a year ago. The performance of the mortgage market is impacted by developments regarding employment, inflation and interest rates as well as trends in household finances, consumer credit-risk profiles, banks’ risk appetites and lending criteria and consumer confidence. Growth in the value of outstanding household
mortgage balances (R855,8 billion at end-September, with a share of 77,6% in household secured credit balances and 58,8% in total household credit balances) came to 3,8% in the first nine months of 2015.
Outstanding mortgage balances are the net result of property transactions, mortgage finance paid out, capital and monthly repayments on mortgage loans as well as loans fully paid up.
According to information published by Old Mutual in the latest edition of the Savings and Investment Monitor, home loan repayment patterns on primary residences showed some shifts over the past two years up to mid-2015. The percentage of homeowners paying the minimum only on mortgage loans increased over this period, whereas the percentage of homeowners paying extra into their mortgage accounts on a monthly basis declined significantly during the same period. The percentage of homeowners paying extra lump sums into their mortgage accounts varied between 5% and 9% since mid-2012.
Home loan repayment patterns by income category in mid-2015 showed that low- to middle-income homeowners are mostly paying the minimum only, with higher-income homeowners in a better position to pay extra on a monthly basis and are also able to pay extra lump sums into mortgage accounts (see relevant tables at the back of the report).
The abovementioned trends in home loan repayment patterns are a reflection of the state of and changes
in homeowners’ financial positions based on trends in economic conditions that point to increased levels of
household financial strain in the past two years. These developments adversely affected consumers’ ability to service existing debt and prevented them from taking up new credit on a large scale, thereby increasing debt levels, which eventually caused the demand for and growth in credit extension to remain subdued.
Housing rental indices, as published by Statistics South Africa, showed that national rental inflation averaged 5% y/y in January to September this year, which was above the average headline consumer price inflation rate of 4,5% y/y during this period. Rental inflation measured 4,6% for houses, 5% for townhouses and 6% for flats over the ninemonth period.
Based on research by Tenant Profile Network (TPN) Credit Bureau , a total of 84,3% of residential tenants was in good standing in the second quarter of the year, comprising those that paid on time (67,4%), those who paid within the grace period (5,5%) and those who paid late (11,4%). Impaired tenants are those who made only a partial payment (10,1% in the second quarter) and those who did not pay at all (5,6% in the second quarter). A total of 82% of residential tenants rented for less than R7 000 per month in the second quarter of the year, with the majority (59%) that rented for between R3 000 and R7 000 per month. Only 18% of tenants thus rented for more than R7 000 per month in the second quarter (13% rented for R7000 R12 000 per month; 4% rented for R12 000 R25000 per month; and 1% rented for more than R25 000 per month). An interesting fact is that only 54% of residential tenants renting for more than R25 000 per month paid on time in the second quarter (the lowest percentage of ontime-paying tenants across the rental value bands), while 17% of those renting for above R25 000 paid late and 15% in this value band made a partial payment only (the highest percentages of late-paying and partial-paying tenants across the rental value bands). These trends in the rentals per value band are regarded an indication of the general financial profile of tenants renting residential property.
Research by both PayProp and TPN showed that the provinces of Gauteng, the Northern Cape and the Western Cape had the highest level of monthly residential rentals in the country in the second quarter of 2015, ranging from above R6 000 to more than R7 000 per month. Both Gauteng and the Western Cape have large and prominent metropolitan areas, causing rentals to be in general markedly higher in these regions than in rural areas.
However, rentals in the Northern Cape have increased significantly over the past 2½ years against the background of expanded mining operations in certain regions of the province, impacting the demand for rental housing in these areas.
exert from ABSA report. Click HERE for Full report
Author: Absa
