Property Talk

Consumer and Business Confidence battered by the political uncertainty

A great resource for South African economic data is the SA Reserve Bank. As their mandate is the maintenance of price stability it is an excellent place to research inflation data. As of September this year our Consumer Price Index (CPI) inflation rate is recorded as 5.1 % and our Producer Price Index (PPI) inflation rate is 5,2%.

These rates are firmly within the bank's 3-6% target range. The key policy interest rate - the "repo" rate is at 6,75%, which is the rate at which the commercial banks are able to borrow money from the Reserve Bank. They act as a wholesaler of money and set the price. Our commercial banks (the retailers of money) charge a higher interest rate.

The prime interest rate they charge their best clients is currently 10,25%. If your mortgage rate is less than this rate consider yourself a very good client of your bank. Most mortgages are concluded at just above the prime interest rate. As the property market is fueled by mortgage finance, the availability and cost of this finance is so important for us as estate agents to have a handle on.

Mortgage Originator, Ooba publishes a useful quarterly report on the status of the South African mortgage market, and in their most recent report they confirm how important first time buyers are to their business. Prices of the homes they service grew by 3,3% in the third quarter of 2017, down from the price spike of 6,1% in the third quarter of 2016. Slower growth in the pricing of first time buyer homes means slower demand for entry-level properties and this is a symptom of affordability challenges.

First time buyers are highly sensitive to changes in the macro-economic environment and in tougher times with lower disposable income growth those people that would have entered the property market decide the either remain in rental accommodation or longer in their family home.

Consumer and Business Confidence has been battered by the political uncertainty that has plagued South Africa for the past two years. The RMB/BER Business Confidence Index for South Africa reached its lowest point at 29 since 2009 in the second quarter of 2017. The third quarter has seen a slight improvement to a measure of 35 in this Index.

Lower average debt for households will be positive once the cycle changes and we enter into a period of renewed growth.

Ooba confirms more favourable lending conditions provided by banks as they compete for business. Ooba's higher approval rate in Q3 2017 of 73.6% compared to Q3 2016's 71.5% together with the improved average interest rate of prime plus 0,34% in Q3 2017 compared to prime plus 0,46% in Q3 2016 provides evidence of this.

From Ooba's statistics we see that the average size bond approved for a first time home buyer is R803,352 on an average purchase price of R921,187. The average deposit on these transactions was R117,835 or 12,8%.