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Slight improvement in transaction volumes alongside mortgage advances

Posted On Tuesday, 10 September 2019 19:40 Published by
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Slight improvement in transaction volumes alongside mortgage advances.


  • The FNB HPI remained steady in August, at 3.6% y/y. Year-to-date nominal house price growth remains around the 3.5% y/y mark, largely similar to the 3.6% y/y recorded in the same period in 2018. The eThekwini metro continues to overperform, supported by booming developments in the North Coast regions, as well as renewed interest in the city centre.
  • Positively, indicators point to a narrowing demand-supply gap. This is driven by both the mild improvement in demand and the persistently slowing pace at which properties enter the market for sale.


    • The slowing pace of supply is driven by sellers withdrawing their properties, amid tough selling conditions, as it is becoming increasingly difficult to attain asking prices. This is countered somewhat by the surge in the supply of new stock (particularly flats and townhouses), as well as the rising emigration-related sales.
    • On the demand side, the improvement can be attributed to some easing in buyer despondency post elections, the increased bargain hunting amid attractive pricing, increased competition between mortgage lenders as well as lower interest rates. This is reflected in the steady growth in mortgage extension, which has averaged 4.3% y/y year-to-date, versus 3.4% y/y in the same period last year.


  • In fact, mortgage advances have been growing faster than the average house price growth in South Africa since the beginning of the year. Except for the brief period in the beginning of 2018 (“Ramaphoria”), we have not seen mortgage lending outpacing house prices since June 2011. Increased lending, however, has been more skewed towards the higher-priced segments. Activity in the lower end is being hindered by lack of affordability, primarily due to the scarcity of adequately priced properties in prime locations.
  • This is also reflected in the transaction volumes, which we estimate using the Deeds registry data, that have ticked up by 0.9% y/y in 2Q19. The disaggregation of the data by purchase price reveals that the R700k–R1.8m and R1.8m–R3.5m ranges were the best performing segments, growing by 5% y/y and 2.4% y/y respectively in the first half of this year.
  • Looking ahead, we expect the combination of easier global financial conditions, weak domestic demand and contained inflation to allow the SARB some space for further monetary policy easing. As such, as a base case, we have pencilled in a 25bps cut by the end of this year. If global policy rates and domestic inflation push lower than currently expected, there could be more room for further policy easing. This, however, is counteracted by the deterioration in South Africa’s fiscal metrics and increased risks to global growth.


  • While lower interest rates will provide underlying support to consumers in the near term, the structural impediments to stronger economic growth remain intact, and these will heavily influence the performance of the housing market. These include high government indebtedness, inefficiency of large state-owned entities, a lack of government capacity and low private sector investment (thus constraining employment growth). Considering all of the above, we continue to expect house price growth to average between 3.5% and 4% y/y this year and in 2020.


Last modified on Tuesday, 10 September 2019 19:51
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