Economic growth and employment levels remained low, while inflationary pressures caused interest rates to be hiked further. With these conditions expected to prevail in 2016, consumers will continue to face financial strain over the short to medium term.
Consumer credit-risk profiles are to remain under pressure and are important in the accessibility of and the demand for and growth in credit. Against this background consumer confidence is expected to remain relatively low.
The downward trend in nominal year-on-year house price growth in the middle segment of the South African residential property market continued up to the end of 2015. Real year-on-year middle-segment house price growth was also lower due declining nominal price growth and trends in inflation.
Price growth in the affordable segment improved further in 2015 after some higher growth in 2014 compared with the preceding year. The segment for luxury housing showed a declining trend in nominal and real price growth during last year, with full-year growth down on that of 2014.
The general outlook for nominal house price growth is to remain in the single digits for the next two years, with the risk for price growth to the downside against the background of trends in and prospects for the economy and the household sector. Based on expectations for nominal house price growth and consumer price inflation in 2016 and 2017, real price deflation is projected over the 2-year period.
Headline consumer price inflation averaged 4,6% y/y in 2015, largely driven by factors such as food prices and domestic fuel prices (determined by international oil price and $/R exchange rate movements). The inflation rate came in at a level of 5,2% y/y in December last year, with the effect of the drought and the significantly weaker rand exchange rate remaining the major upside risks to the inflation picture.
The rand exchange rate has depreciated significantly against most major international currencies last year, dropping by 15% to R12,75 against the US dollar from an average of R10,84 per dollar in 2014.
Based on statistics supplied by Lightstone, there were 6,18 million residential properties in South Africa with a total value of R4,25 trillion in the third quarter of 2015. Of the almost 6,2 million properties, about 2,18 million (35,3%) with a total value of R2,33 trillion were bonded and about 4 million (64,7%) with a total value of R1,92 trillion were nonbonded (see relevant table at the back of the report).
Residential building activity improved in the first eleven months of 2015 on a year-on-year basis, but growth was in the single digits in both the planning and construction phases over this period.
The number of new housing units for which building plans were approved increased by 4% y/y to more than 55 600 units in the period January to November last year. This was the net result of growth of 12,9% y/y in the segment of houses less than 80m², whereas the segments of houses larger than 80m² and flats and townhouses showed some marginal declines.
The number of new housing units constructed increased by 5,2% y/y to more than 36 300 units in the 11-month period, which was largely driven by the category of houses larger than 80m² that showed growth of 14,5% to about 11 200 units.
Year-on-year growth in household mortgage balances was on an upward trend in the last few months of 2015, mainly as a result of the base effect of slowing growth a year ago and indications that fewer homeowners with mortgages have the financial ability to pay extra funds into their mortgage accounts due to increased financial strain.
The performance of the mortgage market is driven by trends in factors such as employment, inflation, interest rates, household finances, consumer credit-risk profiles, banks’ risk appetites and lending criteria and consumer confidence
According to Tenant Profile Network (TPN) Credit Bureau, as much as 84,7% of residential tenants were in good standing nationally in the third quarter of 2015, with 69,4% that paid on time, 5% that paid within the grace period and 10,4% that paid late.
In the segment for luxury housing (homes priced at between R4,2 million and R15,5 million in 2015), the average nominal price increased by 4,1% y/y to a level of R6,1 million in the final quarter of 2015. In real terms, the average price in this category of housing was down by 0,7% y/y in the fourth quarter of last year.
Nominal price growth of 7% was registered in the luxury category in 2015 (9,3% in 2014), with real price inflation recorded at 2,3% last year (3% in 2014).