Property Talk

It's a great time to invest in property

The South African consumer is under pressure. The recently published economics review by FNB paints the picture in numbers showing real household income significantly down.

If people don't have money they struggle to keep spending, even though for a period they use credit to sustain the level of consumption spending they have got used to. The average wage bill increase was 4,6% for 2018. This moderation of wages is apparent across all sectors, except the government services sector, which accounts for 29% of total earnings in SA.

Wow, that is a lot - almost one third of economically active South Africans work directly for the government, even though I am sure most feel that they do indirectly given the amount of tax they pay.

Public sector wages averaged well above inflation in 2018 (7%) and 2017 (7,7%). For a government looking to stay in power in makes sense to have a bloated beaurocracy.

As soon as wage and earnings growth is below inflation, real disposable income retreats and the impact on spending in the economy is noticed - and this includes investment in residential properties. Wages and salaries account for over 70% of all household income.

When income brackets and tax rates increase people pay more tax even though in real terms they are earning less. This fiscal drag is evident and significant in our economy.

On the overall spending side South African households have been spending less with this growth down to 1,2% year-on-year. When things get financially tough, as they currently are in our economy, people spend less on durable and semi-durable items, considered as big-ticket items.

This is exactly what has happened recently with the cyclical components in consumption being the spending on these durable goods, slowing the most. Retailers who sell washing machines, TVs, lounge suites and vehicles would have noticed this impact. Estate agents selling homes would definitely have felt this. Consumer credit has been rising to offset the declining disposable income in order to support some of this spending.

Unsecured credit (what I call "bad" debt as opposed to mortgage finance which I call "good" debt) increased to 8,7% in 4Q2018 from 6,6% in the prior quarter.

The result of this pressure on households is FNB revising their GDP forecast for 2019 downwards from 1,4% to 1,1%. Less production in an economy means less income and less spending.

For sellers of residential properties within our greater Ballito area it means that pricing can be expected to remain flat and once you have an offer in hand on your property, think very carefully how you respond.

My advise would be to do everything you can to conclude the transaction even if it means adjusting your price expectations downwards. For buyers it remains one of the greatest times in recent history to invest and secure your dream home on very favourable terms.