I recently wrote about the alarming growth
in unsecured lending amongst all banks, but most notably African Bank and
Capitec, who have been leading the charge in the micro-loans market. The
difference between the 25% growth in unsecured lending and the less than 2%
growth in secured mortgage lending was highlighted. Since then the equity
market has responded negatively to the leading unsecured lenders with the share
prices of both African Bank and Capitec coming under huge pressure. The great
thing about equity markets is that they are largely efficient in disseminating
information and representing the collective knowledge and view of many
independent players. The share price represents the result of this, and when a
company’s share price is hammered there is usually good reason for it. As we
see real disposable income growth slowing from a peak of above 6% at the end of
2010 to 3.5% by the 4th quarter of 2012 and now expected to slow
further to between 2.5% to 3% during 2013, to be largely in line with expected
GDP growth, we can expect retail sales to slow and definitely expect to see a
slow down in unsecured lending.
The interesting part is that at the same time
we are seeing renewed growth in residential property demand. The expectation of
a recovery in the growth in mortgage lending, the essential and critical fuel
that fires a property market, is what we as estate agents will be looking out
for. The South African Reserve Bank measures the collective investment growth
in property stock in the country, which is called Real Residential Fixed
Investment growth. This measure only returned to mild positive growth in 2012
after almost five years of constant decline. StatsSA also shows that there has
been a return to slight growth in the square metreage of buildings completed in
2012 (approx. 2.8%) after years of sharp decline. The result, as a matter of
course, is less supply of new homes to the market in general, and this is why
estate agents in certain price brackets are now starting to report stock
shortages from around the country.
Another key statistic that is pointing to a
recovery in the market is the Full Title Property Replacement Cost Gap, which
measures the difference between the average full title building replacement
cost and the average existing full title property value expressed as a
percentage of the full title property value. Currently this is 21%, down
considerably from a peak of 26.1% in late 2011, and the trend is downward. It
is therefore on average 21% cheaper to buy an existing home than a new home.
This difference will always be positive but it just depends on how large the
difference is. The lower it gets, the easier it is for developers to bring new
competitively priced homes to the market. All these factors are now pointing to
a recovery in the residential property market.
(Author: Andreas Wassenaar, printed in the Bugle 15th May 2013)
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