Home Loans Contents Economic overview 2 Household sector overview 2 Property sector overview House prices Building costs Land values Affordability of housing 7 Outlook 7 Graphs 9 Statistics 11 Compiled by Jacques du Toit Property Analyst Absa Home Loans Mooi Street Johannesburg 21 PO Box 773 Johannesburg 2 South Africa Tel +27 ()11 3 72 jacques@absa.co.za www.absa.co.za The information in this publication is derived from sources which are regarded as accurate and reliable, is of a general nature only, does not constitute advice and may not be applicable to all circumstances. Detailed advice should be obtained in individual cases. No responsibility for any error, omission or loss sustained by any person acting or refraining from acting as a result of this publication is accepted by Absa Bank Limited and/or the authors of the material. Completion date: February 21 Housing review First quarter 21 The South African economy is estimated to have grown by a real 1, in 21, down from 2,2 in 213. Economic growth is expected to gradually rebound in 21 and 21, to 2,2 and 2, respectively, driven by domestic demand and global growth over the next two years. However, continued severe electricity supply constraints will be a major risk to economic growth over this period. Headline consumer price inlation averaged,1 in 21 and is forecast to subside to below this year on the back of signiicantly lower international oil and domestic fuel prices as well as declining food price inlation. This may cause interest rates to remain stable until later this year. The consumer sector remained under inancial pressure up to late 21. The state of and trends in household inances will continue to be driven by the all-important factors of economic growth, employment, income, debt, inlation and interest rates. Consumers credit-risk proiles will remain a key factor in the accessibility of and growth in household credit, which will impact consumption expenditure against the background of a projected continued low level of household savings. House price growth in the middle segment of the market remained largely resilient throughout 21, despite some challenging economic conditions impacting households over a wide front during the course of the year. In both the categories of affordable and luxury housing nominal price growth was higher last year compared with 213, with prices also increasing in real terms in these two segments of the market. A situation of a normalisation of and more balanced housing demand and supply conditions have largely contributed to house price growth in 21. Single-digit nominal house price growth is expected to continue in 21 and in 21 against the background of the outlook for major economic and household sector-related factors, although base effects may cause price growth to be somewhat lower over the forecast period compared with 213 and 21. Based on current expectations regarding nominal price growth and consumer price inlation, continued real house price inlation is projected for this year and next year, after real price growth was recorded in both 213 and 21. Absa Bank Ltd Reg No 19/79/ Authorised Financial Services Provider Registered Credit Provider Reg No NCRCP7 Company Information: absa.co.za
Economic overview The global economy According to the International Monetary Fund s (IMF) latest assessment of global economic conditions, published in the January 21 World Economic Outlook Update, world growth accelerated to 3, in the third quarter of 21 from 3,3 in the second quarter, with growth that remained largely divergent among the major economies. Oil prices in US dollar terms have dropped sharply since September last year, putting huge downward pressure on inlation over a wide front, with oil exporting countries facing signiicantly lower levels of revenue as a result of the lower oil prices. Economic growth in the US has picked up during the course of last year after a contraction in the irst quarter on the back of severe weather conditions, with labour market conditions improving as the year progressed and inlation remaining low as a result of dollar strength and declining oil prices. In the euro area, economic growth was still very much subdued up to late last year, while inlation continued to decline to a point where the region is on the brink of falling into a state of widespread delation. The European Central Bank has announced a package of substantial quantitative easing in January this year, related to the purchase of inancial assets in an attempt to revive economic activity and inlation in the European economy. The Japanese economy technically experienced a recession in the third quarter of 21, with inlation on a downward trend. Lower economic growth was also evident in China, impacted by subdued investment growth, while the Russian economy weakened markedly on the back of the signiicantly lower oil prices and ongoing geopolitical tensions that caused economic sanctions to be imposed against the country by some prominent Western countries. As a result of the abovementioned trends and developments, monetary policy has remained largely accommodative in advanced economies in 21, whereas currency weakness in emerging and developing economies has caused interest rates to be raised in some of these countries that are heavily reliant on commodity exports. The South African economy Annualised growth in South Africa s real gross domestic product (GDP) measured 1, in the third quarter of 21, up from growth of, in the second quarter and a contraction of 1, in the irst quarter. In the irst three quarters of 21, the country s real economic growth came to 1, on a year-on-year basis. However, during this period economic activity was severely hampered by the protracted -month-long strike in the platinum mining sector and the strike in the steel and engineering industry in July last year. If the contribution of the strike-affected mining and manufacturing sectors is excluded from the growth calculation, the growth rate was a real annualised 2, in the third quarter, instead of 1, when these two sectors are included. Futhermore, the South African Reserve Bank (SARB) has calculated that the annualised real economic growth would have been 3,1 in the third quarter of last year if the strike in the steel and engineering industry did not occur. This includes the secondary negative effect on household consumption expenditure as a result of the loss in household income during this period. The year-on-year (y/y) headline consumer price inlation rate was on a declining trend in the fourth quarter of last year to end the year at,3, impacted by lower food price inlation as well as sharply declining fuel prices on the back of signiicantly lower international oil prices during this period. Headline consumer price inlation came to,1 in 21, up from, in 213 and,7 in 2. Underlying core inlation, i.e. headline inlation excluding the more volatile components of food, non-alcoholic beverages, petrol and energy, remained under upward pressure during the course of 21, ending the year at a level of,7 y/y and averaging, last year compared with,2 in 213 and, in 2. Lending rates remained unchanged up to the end of January this year after hikes of basis points in January and 2 basis points in July last year. The repurchase rate, or repo rate, which is the key monetary policy interest rate and the rate at which commercial banks borrow money from the Reserve Bank, is currently at,7 per annum, with commercial banks prime lending and variable mortgage interest base rates for extending credit to the public at a level of 9,2 per annum. Household sector overview The consumer sector remained under inancial pressure up to the third quarter of 21. Real household disposable income and consumption growth stayed below the 2 level, while the level of household debt was above 7 of disposable income over this period, with the net savings ratio remaining in negative territory in the irst three quarters of the year. The interest rate hikes during the course of last year caused the cost of servicing household debt to mildly rise as a percentage of disposable income. The number of credit-active consumers with impaired credit records was higher by the end of the third quarter of last year, relecting continued inancial strain experienced by households. Consumer conidence, remaining extremely low during 21, is a key driving factor of the demand for credit and household consumption expenditure. However, the consumer sector is currently beneitting from sharply declining domestic fuel prices as a result of signiicantly lower international oil prices, which are expected to result in lower inlation in coming months, while interest rates may remain relatively low for an extended period. Growth in real household disposable income, i.e. aftertax, inlation-adjusted income, was slightly higher at an annualised rate of 1, in the third quarter of 21 from 1, in the second quarter. This was to some extent the result of the normalisation of salary and wage income of workers affected by the platinum mining strike in the irst half of the year, whereas compensation of workers in the steel and engineering industry was adversely affected by the sector-wide strike in July last year. Based on calculations by Andrew Levy Employment Publications, the nominal wage settlement rate came to,1 in 21 (7,9 in 213), which was above the average headline consumer price inlation rate of,1 y/y over this period. Home Loans 2
Growth in real household consumption expenditure improved marginally from an annualised rate of 1,1 in the second quarter of 21 to 1,3 in the third quarter. The somewhat higher real consumption growth came against the background of faster growth in real disposable income, while consumer price inlation subsided slightly during the quarter. The close correlation between growth in real household disposable income and growth in consumption expenditure continued up to the third quarter of 21 and remains related to the severe lack of household savings, as well as many consumers limited inancial ability to access credit for the purpose of spending. This is an indication of households reliance on mainly income and credit to fund consumption expenditure. The ratio of net household savings to disposable income, in negative territory since 2, was at a level of -2,3 in the third quarter of 21 from -2, in the second quarter. Net household savings is calculated from gross savings, adjusted for depreciation write-offs on the value of physical assets held by households, such as residential buildings and vehicles. The value of outstanding household credit balances, comprising instalment sales credit, leasing inance, mortgage loans, credit card debt, overdrafts and general loans and advances (mainly personal and micro loans), showed growth of 3, y/y in 21. Growth in the value of outstanding household secured credit balances (instalment sales credit, leasing inance and mortgage loans) came to 3, y/y at the end of December last year, largely driven by low growth of 2,3 y/y in household mortgage balances, which account for more than 77 of total household secured credit balances. Growth in the value of outstanding household unsecured credit balances (credit card debt, overdrafts and general loans and advances) dropped to,7 y/y at end-december. The relatively low growth in unsecured credit balances was mainly the result of subdued growth in the component of general loans and advances (,7 of household unsecured credit balances and mainly consisting of personal loans and microinance) of 2,1 last year. Factors such as the National Credit Act (NCA), banks risk appetite and lending criteria, consumers credit-risk proiles and consumer conidence affected the availability and accessibility of and demand for credit. The ratio of household debt to disposable income was only marginally lower at 7,3 in the third quarter of 21 from 7, in the second quarter. The debt ratio is calculated as the total amount of outstanding household debt expressed as a percentage of the total annual disposable income of households, i.e. after deductions for tax, social contributions and transfers. As a result of the interest rate hikes in January and July last year, the household debt service-cost ratio increased gradually from, at the end of 213 to 9,1 in the third quarter of 21. This ratio is the interest component of debt repayments expressed as a percentage of disposable income and took account of a debt-to-income ratio of 7,3 in the third quarter of last year and the average lending rate paid on debt during this period. Based on the abovementioned debt-to-income and debt service-cost ratios, the average interest rate charged in the third quarter of 21 to service household debt was around 11, per annum, which was 2,3 percentage points above the ruling average prime interest rate of 9,2 per annum over this period. The premium paid by consumers on debt of above the prime rate is the result of the state of consumer inances, credit-risk proiles, and banks risk appetite and lending criteria against the background of expectations that interest rates will be hiked further. Statistics on consumer credit-risk proiles since the irst quarter of 21, published by the National Credit Regulator (NCR), relect changes to credit regulations announced in late 213 to make provision for a credit amnesty process, which came into effect on 1 April 21. The shift in the data in the irst quarter of last year occurred as a result of credit bureaus implementing the changed regulations as from that quarter. The credit amnesty process involves the continuous removal of adverse consumer credit information kept by credit bureaus, speciically with regard to consumers who have repaid their debt. The amnesty, however, does not relieve consumers from the obligation to repay outstanding debt. In the third quarter of 21 a total of, million creditactive consumers, or,7 of a total of 22, million, had impaired credit records, up from 9,9 million (,) in the second quarter. The number of consumers in good standing came to, million (,3) in the third quarter compared with,17 million () in the second quarter. A total number of 1,1 million consumer credit accounts were active in the third quarter of last year, of which 9, million (73,3) were in good standing and 21, million (2,7) were impaired. Consumers creditrisk proiles impact their access to credit, as relected by banks risk appetite and lending criteria, which eventually affect household consumption expenditure against the background of a continued low level of savings. Consumer inancial vulnerability, as measured by the Bureau of Market Research (BMR), improved somewhat in the third quarter of 21 from the second quarter. At an overall index reading of 1, in the third quarter (, in the second quarter), consumers remained inancially mildly exposed. An index reading of -9,9 in the Consumer Financial Vulnerability Index (CFVI) and its sub-indices indicates that consumers are inancially mildly exposed. An index reading of -9,9 indicates that consumers are inancially very exposed, whereas an index reading of -79,9 indicates that consumers are inancially very secure. The sub-components of the CFVI were measured as follows in the third quarter of 21: Income vulnerability: At,9 index points, consumers were mildly exposed Expenditure vulnerability: At,3 index points, consumers were mildly exposed Savings vulnerability: At 1,9 index points, consumers were mildly exposed Debt service vulnerability: At, index points, consumers were very exposed In the third quarter of last year, 23, of consumers were regarded as inancially vulnerable (3, in the third quarter of 213), with 9,3 regarded as inancially exposed (3, in the third quarter of 213) and 2,9 were regarded as inancially secure (2,7 in the third quarter of 213). This implies that about 73 of consumers Home Loans 3
were experiencing inancial pressure of some or other kind late last year. Based on the latest Quarterly Labour Force Survey published by Statistics South Africa, a total of 1,117 million people were employed in the formal and informal sectors of the economy in the third quarter of 21. The labour market was severely affected by major strikes in some mining and manufacturing sub-sectors in the irst seven month of last year, with only,2 more people that were employed in the third quarter compared with the second quarter, while employment growth was also low in the second quarter at,3 compared with the irst quarter. The unemployment rate remained above the 2 level in the third quarter, with a total of,11 million people being unemployed in the quarter. According to Andrew Levy Employment Publications, a total number of 11, million workdays were lost due to industrial action in the irst three quarters of 21 compared with,7 million lost in the same period in 213 and,2 million lost in the whole of 213. These labour market trends are not conducive to higher levels of conidence, investment and employment in the medium to longer term. According to the Bureau for Economic Research (BER), consumer conidence remained relatively low in 21, measured at a level of index points in the fourth quarter of the year and averaging -, index points for the full year. These index readings were well below the average of + in the past twenty years, which were also the case in 2 and 213. Consumer conidence is measured by expectations regarding the outlook for the domestic economy, household inances and durable consumption expenditure. Consumer conidence remains an important factor with regard to the demand for credit, which is crucial for household consumption expenditure, especially the durable component thereof. Property sector overview In the third quarter of 21, there were just more than million residential properties in South Africa with a total value of almost R,3 trillion, of which 2,1 million with a total value of R2,3 trillion were bonded and 3,9 million with a total value of R2 trillion were non-bonded. These statistics with regard to the residential property stock in the country are supplied by Lightstone (see relevant table at the back of the report). Growth in the planning phase of new housing, as relected by the number of building plans approved by local government institutions for houses, lats and townhouses, was recorded at, y/y to a level of 3 32 units in the irst eleven months of 21 from a total of 7 1 units in the corresponding period of 213. This growth in the planning phase came in anticipation of a growing demand for housing, whereas construction activity has declined on an annual basis. The construction phase of new housing, i.e. the number of housing units reported as completed, contracted by,9 y/y to a total of 3 2 units in the period from January to November last year compared with 39 3 new housing units built in the same period in 213. The improvement in levels of activity in the planning phase is expected to become evident in a higher level of construction activity in the short to medium term. The segments of smaller sized houses and higher density lats and townhouses had a share of just more than 7 in the planning and construction phases of new housing in 21. This has been a structural feature of the supply of new housing in especially the major metropolitan areas over the past twenty years, continuously driven by factors such as urbanisation, land scarcity, building costs, housing affordability, property-operating costs (property rates and taxes, levies, electricity, etc.) and changing lifestyles. Building conidence, based on the BER s building conidence index, jumped further in the fourth quarter of 21 on the back of improved conditions regarding residential building activity, especially in terms of the planning phase, which showed double-digit year-on-year growth for most of last year. Building conidence, with an index reading of regarded as neutral, measured 9, index points in 21, up from 3, in 213. The building conidence 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 interest rate is currently 9,2 per annum, after interest rates were hiked by a cumulative 7 basis points last year. The impact of changes in the mortgage interest rate is relected 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 ixed monthly repayments at various interest rates. These calculations are based on a 2-year repayment term. The relatively subdued performance of the residential mortgage market continued up to the end of 21 on the back of trends in the economy, household inances, consumer credit-risk proiles, banks risk appetite and lending criteria and consumer conidence. The year-on-year growth in the value of outstanding household mortgage balances remained low at just above 2 at year-end. Outstanding mortgage balances are the net result of property transactions, mortgage inance paid out, capital and normal monthly repayments on mortgage loans as well as loans fully paid up. Housing rental indices, as published by Statistics South Africa, showed that rental inlation was below the headline consumer price inlation rate of,1 in 21, measuring, for houses,,3 for townhouses and,7 for lats last year. Based on Absa s calculations, nominal year-on-year house price growth in the middle segment of the market remained largely resilient throughout 21, despite some challenging economic conditions impacting households over a wide front. All categories of housing analysed posted nominal year-on-year price growth of above the average consumer price inlation rate up to year-end (see section below and tables at the back of the report on house price trends). House prices The average nominal value of homes in the middle segment of the market (homes of m² m² and priced up to Home Loans
R million in 21) performed relatively well in 21, with real price growth recorded for a second consecutive year. In both the categories of affordable and luxury housing nominal price growth was higher last year compared with 213, with prices also increasing in real terms in these two segments of the market. However, this house price performance in 21 occurred against the background of low economic growth, signiicant labour market tension, marginal growth in employment, a depreciating exchange rate and rising inlation and interest rates, which negatively affected household inances and levels of conidence. It is believed that a situation of a normalisation of and more balanced housing demand and supply conditions, as indicated inter alia by trends in residential building activity during last year (see above), have largely contributed to the house price growth seen in 21. The nominal price of a property refers to the price at which it was valued or transacted on the open market, i.e. market price, selling or purchase price and is relected in a valuation, an offer to purchase, an application for mortgage inance and the transfer documentation at registration. The real price of a property is the nominal price adjusted for the effect of inlation, and is calculated to determine if the value of a property has increased at a rate above or below the inlation rate. In addition to the nominal price, real property price trends and growth are important from a property investment point of view. The residential property price trends presented in this report are based on the value of properties for which Absa received and approved applications for mortgage inance. As a result, price movements may relect changed market strategies and lending criteria implemented by the bank, impacting differently on the various segments of housing analysed. Real price calculations are based on nominal prices delated by the headline consumer price index. All price data series are seasonally adjusted and smoothed in an attempt to exclude the distorting effect of seasonal factors and outliers, which may have the effect of recent price data and growth rates differing from previously published igures. Affordable housing In the fourth quarter of 21, the average price of affordable housing (homes of m² 79m² and priced up to R in 21) increased by a nominal 7, y/y (,2 y/y in the third quarter) to about R31. Real price inlation of 1, y/y occurred in the fourth quarter (1,9 y/y in the third quarter). The average price of affordable homes increased by a nominal, in 21 compared with growth of 3, in 213. In real terms prices increased by a marginal,3 last year after declining by 2,1 in 213. Middle-segment housing The average nominal price of a home in the middle segment of the market (homes of m² m² and priced at R million or less in 21) increased by 9, y/y to more than R1 31 in the inal quarter of last year compared with growth of 9, y/y in the third quarter and 9,3 y/y in the second quarter. Real price inlation in this category of housing was recorded at 3, y/y and 3, y/y in the third and fourth quarters respectively. Middle-segment housing experienced nominal price growth of 9, in 21 ( in 213), while in real terms the average price of homes in this category improved by 3,1 in 21 after real price growth of, in 213. The following price changes occurred in the three middlesegment categories in 21: Small houses (m² 1m²): 9, y/y nominal and 3, y/y real Medium-sized houses (11m² 22m²): 7, y/y nominal and 1,3 y/y real Large houses (221m² m²): 7,7 y/y nominal and 1, y/y real Luxury housing The fourth quarter of 21 saw the average price of luxury housing (homes priced at between R million and R1, million in 21) rising strongly by a nominal 1,7 y/y to a level of about R 93, after prices had risen by an equally strong 11,9 y/y in the third quarter. In real terms, the average price in this category of housing was up by,3 y/y and 9,7 y/y in the third and fourth quarters respectively. In 213 nominal price growth of, (, in 2) was recorded in the segment for luxury housing. This translated into real price delation of,9 in 213 after adjustment for the effect of inlation (-, in 2), causing prices in this category of housing to have declined for the sixth consecutive year in real terms. As the sample size of luxury-segment housing is relatively small, a number of transactions of a higher value compared with the previous quarters, as well as a year ago, could have contributed to the strong price growth in the third and fourth quarters of last year. Regional house prices The performance of the residential property market at geographical level is affected by national economic trends in general. However, the regional property markets may react differently to macroeconomic developments as a result of additional area-speciic factors, such as location, physical infrastructure, sectoral economic composition and the level and extent of economic growth and development. These factors may have a profound effect on property demand and supply conditions, market activity, buying patterns, transaction volumes and price levels and growth. At a provincial, metropolitan and coastal level, house prices increased in most regions on a nominal and real basis in 21. House prices in the middle segment of the market performed as follows at provincial level in 21: Free State: 11,9 higher in nominal terms (, in real terms) Western Cape: A nominal 11,7 higher (, in real Home Loans
terms) Gauteng: Up by 9, in nominal terms (3, in real terms) KwaZulu-Natal: Up by 9, in nominal terms (3,1 in real terms) Limpopo: Up by a nominal 7, (1,3 in real terms) Northern Cape: 7,3 higher in nominal terms (1,1 in real terms) Mpumalanga: A nominal, higher (, in real terms) Eastern Cape: Up by a nominal, (-1, in real terms) North-West: 3,3 higher in nominal terms (-2, in real terms) The performance of middle-segment house prices in the major metropolitan areas was as follows in 21: Bloemfontein: 1, higher in nominal terms (11,3 in real terms) Cape Town: A nominal 13,3 higher (, in real terms) Pretoria: Up by a nominal 11, (,2 in real terms) Greater Johannesburg: Up by, in nominal terms (,2 in real terms) Durban/Pinetown: A nominal, higher (-,1 in real terms) East London: Up by 3,1 in nominal terms (-2, in real terms) Port Elizabeth/Uitenhage: Up by a nominal 1, (-,2 in real terms) The metropolitan areas of Port Elizabeth, Uitenhage, East London and Durban are closely related to the vehicle and component manufacturing industry, which experienced challenging times in 21 against the background of labour action and subdued new vehicle sales and export volumes compared with previous years. These developments, together with some other macroeconomic trends, are believed to have contributed to the largely muted house price performance in these areas last year compared with some other major metropolitan areas. Year-on-year price growth in coastal regions was lower than in the country as a whole during 21, although both quarterly and annual price growth proved to be relatively strong towards the end of the year, with the exception of only the KwaZulu-Natal South Coast that experienced price delation in the fourth quarter of last year. The coastal property market, normally having a relatively large investment and leisure focus, experienced a lot of downward price pressure in recent years against the background of inancial strain experienced by the household sector in general. However, a gradual improvement in market conditions along the coast is evident in view of continued excellent buying opportunities in certain areas. The coastal regions saw the following changes in the average price level of homes between m² and 7m² and priced up to R1, million in 21: All coastal regions: Up by,1 in nominal terms (-.9 in real terms) Western Cape:, higher in nominal terms (2, in real terms) Eastern Cape: A nominal,2 higher (,1 in real terms) KwaZulu-Natal: Down by 2, in nominal terms (-,1 in real terms) New and existing housing The average price of a new home showed virtually no price movement on a year-on-year basis in the fourth quarter of 21, while real price delation of, y/y was recorded. Price growth with regard to new homes has been on a downward trend during last year, which could be the result of the inclusion in the sample of an increasing number of cheaper new homes in view of continued above-inlation increases in building costs (see below) and households remaining under inancial pressure over the past year on the back of low real income growth, rising inlation and higher interest rates. The average price of a new home came to about R1 in the fourth quarter of 21. The average price of an existing house was up by a nominal, y/y to a level of around R1 29 in the fourth quarter of last year, which resulted in real yearon-year price growth of,1 in the quarter. As a result, it was around R1, or 2,, cheaper to have bought an existing house than to have had a new one built in the fourth quarter of 21. In 21 the average nominal price of a new house was up by just 1,9 to a level of about R1 79, which resulted in real price delation of 3,9 taking account of headline consumer price inlation of,1 last year. The average nominal price of an existing house was about R1 2 in 21 (up by 9,7 in nominal terms and 3, in real terms compared to 213). This made it R, or 3,, cheaper to have bought an existing home than to have built a new one in 21. Building costs The cost of having a new house built increased by, y/y in the fourth quarter of 21, down from an increase of 7, y/y in the third quarter and, y/y in the second quarter, but remained above the average consumer price inlation rate of,1 y/y in these quarters. Despite the continued upward trend in building costs, the growth in the average price of a new house has been slowing down up to the end of last year (see above price trends with regard to new homes). Building costs showed an increase of 7, in 21 after rising by 7,1 in 213. Factors impacting building costs, and eventually the price of new housing, include building material costs; equipment costs; transport costs; labour costs; developer and contractor proit margins; and the cost of developing land for residential purposes, which is impacted by aspects such as inance costs, land values, the cost of rezoning, the cost of preparing land for construction and holding costs in general. Land values The value of vacant residential stands in the middle and luxury segments of the housing market for which Absa received applications and approved mortgage inance, increased by a nominal,9 y/y to an average of about Home Loans
R in the fourth quarter of 21, after having risen by 7,9 y/y in the third quarter. In real terms residential land values were up by 3,1 y/y in the fourth quarter of last year, after rising by 1, y/y in the preceding quarter. Residential land values increased by a nominal,1 and a real,1 in 21 after nominal and real growth of 7, and 1, respectively in 213. The average price of land for new middle-segment and luxury housing came to 2,7 of the total value of a new residential property in these categories in the fourth quarter of 21, with this ratio averaging 27,1 last year. Residential land values are to continue to relect the allimportant factors of location, the availability of suitable land for development, the availability of municipal services such as electricity, water, sewerage and refuse removal, the availability, condition and accessibility of transport infrastructure and the proximity to places of work, schools, shopping centres, medical facilities, etc. Affordability of housing The affordability of housing showed a further gradual deterioration in the third quarter of 21, as relected by the ratios of house prices and mortgage repayments to household disposable income (see graph on the affordability of housing). This was the net result of nominal house price growth of 9, y/y and nominal disposable income growth of 7,2 y/y in the quarter, while the mortgage interest rate increased further by 2 basis points to 9,2 per annum early in the third quarter of the year. Apart from trends in house prices and the mortgage interest rate, households ability to afford housing is also inluenced by other important factors such as employment, income, savings, living costs, debt levels, credit-risk proiles (as relected by the state of consumer credit records), National Credit Act stipulations and banks risk appetite and lending criteria in the case of applications for mortgage inance to acquire property. A downward/upward trend in the abovementioned two housing affordability ratios implies that house prices and mortgage repayments are rising at a slower/faster pace than household disposable income. The result is that housing is in effect becoming more/less affordable. Outlook The global economy The IMF is projecting world economic growth at 3, in 21 and 3,7 in 21, which is slightly lower than predicted late last year. The downward revision of global growth of,3 percentage points came on the back of a struggling European economy, as well as a slower pace of economic activity foreseen in China, Japan and some major oil producing countries, including Russia, driven by inter alia the signiicantly lower international oil prices. In contrast, economic growth in the US is expected to be somewhat higher in 21 than previously estimated. However, the boost to global demand resulting from lower oil prices may be regarded as a supporting factor to world growth over the short term, but the future outlook for oil prices remains uncertain, with eventual risks for world inlation, monetary policy and economic growth. Growth in advanced economies are forecast at 2, in both 21 and 21. The US is set to grow by 3, in 21 and 3,3 in 21, with a possible start to monetary policy normalisation, i.e. higher interest rates, later this year. The euro area is projected to continue to show very modest growth of 1,2 in 21, increasing only marginally to 1, next year. The European Central Bank has, however, announced major stimulatory measures in January in an attempt to revive economic activity in the region and spur on inlation. The UK economy is forecast to grow by 2,7 in 21, while growth in 21 is expected to be slightly lower at 2,. Japanese economic growth is projected to remain sluggish at, this year and, next year, with the possibility of further stimulatory measures to be announced by the Bank of Japan, if deemed necessary, to lift the economy out of recession. Emerging market and developing country growth is forecast at,3 in 21 and,7 in 21, with growth in China to slow down from 7, in 21 to, and,3 in 21 and 21 respectively. Sub-Saharan Africa is expected to show growth of,9 this year and,2 next year, with many countries in the region highly exposed to the commodity cycle, which is forecast to remain largely depressed over the next year or two in view of relatively muted global growth expectations. The South African economy The South African economy is estimated to have grown by a real 1, in 21, down from 2,2 in 213. Economic growth is expected to gradually rebound in 21 and 21, to 2,2 and 2, respectively, driven by domestic demand and global growth over the next two years. However, continued severe electricity supply constraints will be a major risk to the performance of the economy over this period. Headline consumer price inlation is forecast to be signiicantly down from,1 in 21 to less than this year on the back of lower international oil and domestic fuel prices and declining food price inlation. However, oil prices may show a gradual rising trend in the second half of the year, with eventual adverse consequences for fuel prices and inlation. As a result, consumer price inlation is projected to rise to almost by year-end and above the level in 21. The rand exchange rate, which is expected to stay under some depreciating pressure, remains an additional risk to the inlation outlook, together with above-inlation salary and wage increases and low productivity growth. Largely driven by the outlook for consumer price inlation over the next twelve months, domestic interest rates are forecast to remain unchanged until September this year when a 2 basis point hike is projected to curb an expected rising trend in inlation. Depending on developments regarding domestic inlation and US interest rates, there is, however, a risk that the next hike in local Home Loans 7
interest rates may occur somewhat later. A further 7 basis points worth of domestic interest rate hikes are forecast for 21 in an attempt to keep inlation under control, which is expected to rebound to well above next year. With prime lending and variable mortgage rates unchanged at 9,2 per annum since July last year, the current forecast is for these interest rates to end the year at a level of 9, per annum, rising to,2 per annum by the end of 21. The household sector The state of and trends in household inances will continue to be driven by the all-important factors of economic growth, employment, income, debt, inlation and interest rates in 21-1. Employment growth is forecast to remain relatively low, whereas growth in real household disposable income and consumption expenditure is set to rise from levels of below 2 in 21 on the back of expected low inlation and stable interest rates for a large part of this year. The ratio of household consumption expenditure to GDP is forecast to remain around the level, indicating the importance of the consumer sector in economic activity. The household debt-to-income ratio is projected to subside gradually in view of some faster growth in income, but to remain well above the 7 level. Consumers credit-risk proiles will remain a key factor in the accessibility of and growth in household credit, which will impact consumption expenditure against the background of a projected continued low level of household savings. The property market The residential property market is set to continue relecting trends in economic growth, employment and household income, property running costs and living costs in general, interest rates, consumers credit-risk proiles, banks risk appetite and lending criteria and consumer conidence. These factors are to largely drive the affordability and accessibility of housing and mortgage inance, which are expected to be relected in trends in property demand and supply conditions, residential building activity, property prices, indicators of market activity, buying patterns, transaction volumes, the demand for mortgage inance and home loan repayment patterns. Single-digit nominal house price growth is expected to continue in 21 and in 21 against the background of the outlook for major economic and household sectorrelated factors (see above), although base effects may cause price growth to be somewhat lower over the forecast period compared with 213 and 21 when price growth of and 9,3 respectively was recorded. Based on current expectations regarding nominal house price growth and consumer price inlation, continued real price inlation is projected for this year and next year, after real price growth was recorded in both 213 and 21. Growth in outstanding household mortgage balances, which remained low at just above 2 y/y up to the end of 21, may improve somewhat this year on the back of abovementioned expected trends in the economy and household inances, which may also lead to an improvement in consumer conidence from its relatively low level of the past three years. Economic trends, household inances and consumer and building conidence are important factors driving residential building activity and the demand for and supply of new housing, along with trends in the secondary housing market, changing lifestyles, the availability of serviced development land and building costs. The planning phase of building activity for new housing has rebounded strongly in 21, which is expected to be relected in the construction phase over the next to 1 months. However, not all housing that are planned are eventually built, mainly as a result of various factors that may have a constraining impact, such as the availability and approval of municipal services, the availability and accessibility of inance and building conidence. Home Loans
Graphs change Real gross domestic product 2-2 q/q change - y/y change - - Source: SARB 1 13 11 9 7 3 2 Source: SARB, Stats SA Targeted inflation and interest rates CPIX/CPI (Left) Prime rate (Right) Repo rate (Right) 1 1 q/q change 1 2-2 - - Source: SARB Household income and consumption Real consumption growth Real disposable income growth.. -. -1. -1. -2. -2. -3. Source: SARB Net household saving ( of disposable income) Household credit and mortgage balances y/y change 11 Total credit balances Mortgage balances 9 7 3 2 1 9 11 13 1 Source: SARB 1 1 1 Source: SARB Household debt and debt servicing (Debt and debt servicing as of income) Debt servicing ratio (left) Prime rate (left) Debt ratio (right) 9 2 7 7 9 7 3 2 1 39 3 9 11 13 1 Source: NCR Consumer credit-risk profiles ( of total credit-active consumers) with impaired record (left) in good standing (right) 2 1 9 7 3 2 1 2 2 1 - - Source: BER Consumer confidence index ( = neutrality) Home Loans 9
y/y change 2 2 1 - Affordable house price growth (m²-79m², R ) Nominal Real Middle-segment house price growth (m²-m², R million) y/y change 2 Nominal Real 1 - - - -1 y/y change 1 1 1 2-2 - - - - Luxury house price growth (>R million-r1, million) Nominal Real y/y change 1 - - -1-2 House price growth: coastal regions (m 2-7m 2, R1,m) Nominal Real (Nominal, m²-m², R million) Rand 19 Existing (left) 1 New (left) 3 17 difference (right) 32 1 1 1 13 11 9 Average price of new and existing houses 2 2 2 1 - y/y change 2 Building cost of new houses (m²-m², R million) Growth in residential land values y/y change (New housing) 3 2 Nominal 2 Real 1 - - -1 Index 2= 17 1 1 1 13 1 9 Affordability of housing Repayment/HDI (left) House prices/hdi (left) Mortgage interest rate (right) 1 1 1 13 11 9 Home Loans
Statistics Q1 213 Q2 213 Q3 213 Q 213 Q1 21 Q2 21 Q3 21 share 2 Number of properties Total number 929 29 9 9 97 397 972 93 2 992 79 3 339. Bonded 2 139 2 13 29 2 13 93 2 2 2 31 2 11 9 2 9 21 3.9 Non-bonded 3 79 79 3 39 3 2 3 9 3 7 3 77 927 3 99 9.1 Freehold properties (excluding estate properties) 93 92 1 93 322 92 23 99 1 977 9 2 3. Bonded 1 29 7 1 2 73 1 2 1 1 2 1 19 1 3 19 1 3 29. Non-bonded 3 3 3 1 23 3 33 2 3 7 23 3 9 2 3 73 3 3 7 7.2 Sectional title properties (excluding estate properties) 71 193 7 7 7 713 2 71 717 9 719 72. Bonded 23 32 2 399 2 97 2 79 2 117 2 337 2 2.9 Non-bonded 277 31 2 3 23 99 27 7 29 77 292 2 29 717 1.1 Estate properties 3 292 92 293 7 29 29 29 1 297 32 29 2 299 1. Bonded 1 92 1 77 1 992 1 1 1 713 1 331 2.3 Non-bonded 7 7 79 9 217 1 111 32 1 9 1 1 37.7 Property value (R billion) Total value 3 3 933 7 19 21 29. Bonded 2 7 2 9 2 13 2 1 2 193 2 217 2 29 2.7 Non-bonded 1 72 1 2 1 71 1 91 1 9 1 999 2 31 7.3 Freehold properties 2 77 2 7 2 2 9 2 93 3 3 1 71.1 Bonded 1 13 1 33 1 9 1 1 3 1 97 1 2.1 Non-bonded 1 3 1 37 1 1 1 7 1 2 1 23 9.9 Sectional title properties 79 91 1 27 39 1.9 Bonded 331 337 33 39 3 39 3 7.2 Non-bonded 23 22 2 2 22 2 27 2. Estate properties 3 3 7 9 7 9 1. Bonded 33 3 3 31 3 3 3.9 Non-bonded 23 2 21 219 22 229 23 39.1 1 Housing and vacant land, excluding housing on agricultural smallholdings and farms 2 Latest available quarter. Percentage share may not add up due to rounding 3 Freehold properties, sectional title properties and vacant land Historical data may be revised due to the inclusion of lagged information Source: Lightstone Residential property stock 1 Monthly mortgage repayment Rand, calculated over a period of 2 years Mortgage Repayment at a mortgage rate of amount 9. 9.2 9. 9.7..2..7 11. 11.2 11. 11.7..2 9 91 932 99 9 92 99 1 1 1 32 1 9 1 1 1 1 1 119 2 1 799 1 32 1 1 97 1 93 1 93 1 997 2 3 2 2 99 2 133 2 17 2 22 2 237 3 2 99 2 7 2 79 2 2 9 2 9 2 99 3 3 97 3 1 3 199 3 21 3 33 3 3 3 99 3 3 3 729 3 79 3 3 927 3 99 1 9 197 2 33 7 99 79 1 73 2 9 992 7 11 2 332 19 93 39 9 93 91 79 9 99 91 193 29 399 2 7 711 7 29 11 2 7 72 99 7 7 7 22 7 3 7 7 7 7 7 3 7 19 7 327 7 7 7 7 72 7 3 7 97 2 2 39 31 7 9 99 9 9 23 39 37 3 9 9 137 9 29 9 3 9 9 9 73 9 9 7 1 997 9 19 9 321 9 9 9 1 9 9 12 322 93 37 11 11 11 1 1 13 9 13 73 13 92 1 22 1 7 1 72 1 97 1 22 1 3 1 739 1 99 1 2 1 1 1 77 2 17 99 1 317 1 3 1 97 19 3 19 33 19 9 2 3 2 2 9 21 329 21 7 22 22 22 371 2 22 93 22 97 23 33 23 713 2 2 1 2 99 2 31 2 2 231 2 1 27 93 27 27 27 9 Mortgage amount at fixed monthly repayment Rand, calcutaled over a period of 2 years Mortgage Mortgage amount at a mortgage rate of repayment 9. 9.2 9. 9.7..2..7 11. 11.2 11. 11.7..2 1 111 1 9 1 7 21 2 3 2 1 7 9 9 2 9 3 93 771 92 27 9 19 9 2 222 29 21 372 21 2 2 27 29 23 7 2 32 197 193 73 19 11 17 2 1 2 11 39 17 1 3 333 3 327 9 321 3 31 23 3 7 3 3 7 29 29 2 917 21 313 27 2 272 2 21 3 7 29 21 711 1 9 7 9 39 37 2 31 222 37 3 39 3 33 27 37 1 72 931 3 27 139 1 3 9 3 11 92 7 2 1 379 97 7 1 7 117 3 32 7 21 7 11 22 97 91 1 29 71 3 2 2 3 91 3 2 7 77 1 7 33 7 97 737 99 72 372 713 9 71 13 9 7 171 7 139 39 931 3 73 2 2 9 1 73 9 2 3 22 2 997 1 9 1 29 7 77 2 72 7 17 73 27 72 71 22 9 1 3 92 7 9 29 9 932 22 91 3 91 71 93 7 71 3 93 3 3 17 37 3 1 111 1 91 2 1 72 1 27 1 3 2 1 1 7 1 1 23 9 999 9 1 93 937 7 922 79 9 19 9 3 1 1 7 17 1 37 793 1 9 21 1 1 1 1 39 1 2 1 2 3 1 77 99 1 3 223 1 29 1 3 1 3 13 1 32 291 1 31 2 2 222 99 2 13 72 2 1 21 2 2 72 92 2 37 2 3 2 1 99 999 1 937 31 1 9 1 1 7 17 1 17 1 1 3 1 7 2 2 77 2 2 729 2 2 2 2 3 9 2 9 1 2 7 2 7 2 2 99 2 22 3 2 32 1 2 3 271 2 3 9 2 27 2 23 7 Home Loans 11
Average nominal house prices 211 2 21 21 Rand Rand Rand Rand Rand Rand Rand Rand Rand q/q Δ y/y Δ National Middle segment (m²-m² Rm) 1 1 1 22 1 1 1 27 3 1 21 97 1 232 1 23 1 1 29 23 1 31 9 2. 9. Small (m²-1m², Rm) 737 73 23 72 73 2 3 7 17 77 29 19 2 3 91 77 3. 13. Medium (11m²-22m², Rm) 97 1 17 9 1 7 93 1 19 3 1 9 71 1 13 9 1 1 7 1 17 1 19 171 2.3.9 Large (221m²-m², Rm) 1 7 3 1 19 9 1 73 11 1 2 723 1 71 7 1 73 7 1 9 1 22 1 33 77..7 New (m²-m², Rm) 1 1 17 1 9 29 1 72 97 1 79 391 1 2 1 3 1 79 21 1 7 22 1 91 1.2. Existing (m²-m², Rm) 1 3 1 3 22 1 13 9 1 2 2 1 172 3 1 2 72 1 23 27 1 2 3 1 29 2.. Affordable (m² ² 31 29 337 1 39 9 371 27 3 927 3 99 39 2 37 31 1 1.3 7. 79 17 211 1 7 7 7 2 772 32 9 711 33 93 27 3.9 1.7 Provinces Eastern Cape 9 7 9 1 9 3 1 21 1 21 132 1 3 79 1 29 397 1 11 33 9 29 -.1 -. Free State 93 317 7 1 9 22 1 2 23 91 19 1 1 7 1 29 1 37 22 1 2 39 2.. Gauteng 1 11 2 1 3 13 1 22 22 1 319 7 1 23 3 1 271 2 1 3 79 1 337 39 1 39 1 2.. KwaZulu-Natal 9 9 93 22 1 3 13 1 1 72 1 117 11 1 13 729 1 13 1 1 19 3 1 21 21 2.2.9 Limpopo 7 93 93 33 1 17 1 93 13 1 1 7 1 3 1 9 91 1 9 332 1 1.2 13.7 Mpumalanga 93 7 92 73 1 2 3 1 91 7 1 2 1 31 1 72 1 99 33 1 7 2-1.9 3. North West 337 71 91 917 3 97 2 9 93 9 2 99 1 9 22 -.9 -.1 Northern Cape 777 79 7 99 93 1 9 3 99 7 1 7 3 1 9 7 1 79 71 1 27 9 -. 3. Western Cape 1 19 197 1 19 9 1 291 39 1 3 7 1 32 92 1 3 1 13 13 1 7 92 1 2 79 3. 1. Metropolitan regions PE/Uitenhage (Eastern Cape) 71 1 72 97 921 2 93 9 929 73 922 9 917 1 91 719 -.2-1. East London (Eastern Cape) 99 1 2 1 1 1 9 1 19 11 1 277 1 2 1 1 27 17 1 92 1 1 31-1. -. Bloemfontein (Free State) 1 2 1 7 1 2 777 1 17 229 1 23 12 1 3 1 73 9 1 79 1 1 37 211-7.. Greater Johannesburg (Gauteng) 1 11 317 1 132 31 1 2 1 337 7 1 23 3 1 2 3 1 322 722 1 31 929 1 3 9 1..1 Johannesburg Central & South 99 2 7 3 9 993 72 3 93 7 1 1 77 1 1 731 1 1 19 1.3 1. Johannesburg North & West 1 9 231 1 23 99 1 99 11 1 7 1 7 1 22 91 1 91 73 1 7 33 1 31-1..9 East Rand 1 23 399 1 1 2 1 2 1 1 21 1 9 1 1 117 7 1 1 2 1 17 77 1 2 9 1.. Pretoria (Gauteng) 1 13 93 1 1 1 39 9 1 2 29 1 39 2 1 392 977 1 1 1 92 7 1 7 93 1. 11. Durban/Pinetown (KwaZulu-Natal) 1 21 731 1 9 1 9 21 1 1 2 1 1 13 1 131 1 17 3 1 13 27 1 199 3.2 7. Cape Town (Western Cape) 1 192 1 237 2 1 33 7 1 1 9 1 37 1 3 3 1 2 727 1 3 3 1 2 232 3. 17.2 Coastal regions South Africa 1 232 22 1 21 717 1 37 7 1 1 39 73 1 3 37 1 37 711 1 711 1 39 32.1. Western Cape 1 31 11 1 313 27 1 3 1 91 17 1 21 19 1 9 199 1 1 7 1 1 1 721 9. 13.1 West Coast 1 337 1 1 23 1 1 39 2 1 191 1 27 1 373 311 1 9 1 79 1 2 913. 1.7 1 27 2 1 3 1 1 9 3 1 2 923 1 1 3 1 72 31 1 3 9 1 2 71 1 79 3.. 1 2 39 1 3 33 1 1 1 7 1 3 337 1 2 1 3 1 1 2 1 7 2.2 19. Eastern Cape 1 79 1 3 1 9 29 1 1 1 1 9 1 9 37 1 133 737 1 21 373 1 22 17.. KwaZulu-Natal 1 27 17 1 19 21 1 7 1 3 9 1 33 39 1 2 1 1 399 3 1 39 39 1 39 7.1 2.3 1 1 1 2 3 1 2 1 1 11 1 9 1 79 1 2 2 971 97 -. -1.9 1 792 1 323 11 1 27 1 37 1 27 9 1 3 1 2 33 1 19 73 1 9 11..3 House prices are based on the total smoothed purchase price of houses (including all improvements) in respect of which loan app Absa Bank. House prices for the provinces and metropolitan regions are smoothed for all houses between m² and m², up to R million in 21. House prices for the coastal regions are smoothed for all houses between m² and 7m², up to R1, million in 21. Average nominal house prices by middle-segment category in the fourth quarter of 21 Small: m² - 1m² Medium: 11m² - 22m² Large: 221m² - m² Price q/q y/y Price q/q y/y Price q/q y/y Rand Δ Δ Rand Δ Δ Rand Δ Δ National and provinces South Africa 77 3. 13. 1 19 171 2.3.9 1 33 77..7 Eastern Cape 7.9. 92-1.9-2.2 1 73 1.2-3. Free State 77 7 -. -1.7 1 132 3 23.3 3.9 1 392 1.1 11. Gauteng 9 9 2..9 1 1 2 3.9. 1 92 21 1.1. KwaZulu-Natal 7 72 -.1 1. 1 9 31 2..7 1 71 1 3.1 9. Mpumalanga 717 3 -. -.1 99 1-1.2 2.2 1-2.. North West 9 3-3. -.9 9 22-1..3 1 3 21 -.2 1. Northern Cape 2 23 1. 1. 1 9 -. 1.3 1 32..3 Limpopo 2 77 -.3. 1 7 17 7. 1.7 1 2 2.2 1. Western Cape 1 3 11.1 2.7 1 99 3.2. 2 17 77.7 9. Metropolitan regions PE/Uitenhage (Eastern Cape) 77 3.3 11. 92 1. -2. 1 2 929 -. -. East London (Eastern Cape) 79 72-3.2-2. 1 17 3. 7. 2 2.. Bloemfontein (Free State) 1-7.9. 1 9.7 2. 1 72 7 -. 1. Greater Johannesburg (Gauteng) 99 71 2. 13.7 1 2 17 1. 11.3 1 919 9 1. 11. Johannesburg Central & South 9-9. -1.2 9 19-3.3 7. 1 971.7 32.2 Johannesburg North & West 99 7 3.7 22. 1-3.3.9 2 3 993-1.7 9. East Rand 1 1 72 3..3 1 29. 3. 1 9 11.. Pretoria (Gauteng) 1. 1.3 1 21 772.2 1.9 2 1 31 1. 11. Durban/Pinetown (KwaZulu-Natal) 933. 1. 1 111 92.2.7 1 72 3.7 3.7 Cape Town (Western Cape) 1 11 97 11.1 2.2 1 1 79 3.9 9.1 2 272 37 -.2 11. House prices are based on the total smoothed purchase price of houses (including all improvements) between m² and m², up to R million, in respect of which loan applications Home Loans