“Property, however, remains a solid, dependable investment, but it is critical that buyers think their long-term financial planning through very carefully,” says Gray. Richard Gray, Harcourts Africa Chief Executive Officer, says according to Absa’s Housing Review for the third quarter of 2016, a combination of rising interest rates, inflation along with anaemic economic growth and pressure on household disposable income is placing increasing pressure on the affordability of South African residential property.
The report notes that GDP is forecast to contract marginally during 2016, while consumer price inflation is expected to reach 7% by the end of the year. Increases in food and fuel prices, coupled with an overall weak exchange rate have been a major driver of inflation, hitting consumers’ pockets hard.
“South Africans are increasingly stressed trying to make ends meet. Many seek relief in scaling down their payments on long-term debts,” says Gray.
Old Mutual’s Savings and Investment Monitor, released in July, shows that over two thirds of bondholders are paying the minimum permissible contributions to their bonds.
“Only 14% are paying extra each month. This represents a significant decline over the past few years - in 2013, 31% were making extra monthly contributions,” says Gray.
“Middle- and low-income buyers were most likely to be making minimum payments - they have been particularly vulnerable to the rising cost of living. The prospect of defaults, and the loss of homes, with the accumulated investment they represent, is a very real and serious threat in this part of the market.”
He says this is especially the case where households may have been hit unemployment.
“These trends are likely to continue over the medium term, given restrained expectations for South Africa’s economic performance,” says Gray.
Real relief for South Africa’s property buyers is likely to depend on a turnaround of the country’s overall economic fortunes - although forecasts for real GDP growth are not encouraging at the moment.”
He says the prospect of interest rate hikes adds an additional element of risk.
“Property, however, remains a solid, dependable investment, but it is critical that buyers think their long-term financial planning through very carefully,” says Gray. “Avoiding financial over-commitment and, ideally, making provision for unforeseen shocks are critical for helping your property purchase through tough times.”