Our 2014 South African Home Loan and Property Prognostications


Warning! This is simply a forecast based on an analysis of the evidence at hand not a prophecy. If I could see into the future I would not be typing this post. I’d probably be on my own tropical island sleeping on a big pile of money

Now that we’re just about done with our first week back in the office and most of the admin from the end of 2013 has been tied up (those holidays do sneak up on you!) we can take a breath and look ahead to 2014 has in store for us.

More of the same
In December 2013 two of the world’s three major credit rating agencies, Standard & Poor’s and Fitch, say that South Africa’s outlook is “stable”. And while the third, Moody’s, disagrees saying that the outlook is “negative” this is based on a slow decline and we are unlikely to see any major downturns or upsets.

When you see “upsets” you might immediately think “election 2014” and “Malema and the EFF”. Don’t worry! Even in the face of bold claims by opposition parties most pundits believe that the ANC is unlikely to lose power in the upcoming general election. Even the predicted erosion of support is unlikely to cause a major turn-around in the character, policies or stated goals of the government.

If Nkandla and Guptagate didn’t bring down the government what can? The 2014 strike season and the dissatisfaction of the ANC’s union partners are much more likely candidates than an opposition party winning the election. But then Marikana didn’t bring it down either.

While the Rand’s weakness, higher than anticipated inflation, low GDP growth, increases to household debt and South Africa’s trade deficit are of concern to investors there is, as yet, nothing to indicate that there will be any major changes to the South African political or economic landscape in 2014. It will be the year of “more of the same” or “business as usual” and as such will merely see an extension of current market trends.

What does this mean for the property market?
Property prices in the primary housing market (that is: not houses bought to be rented out) will see steady growth through to 2020 thanks to demand outstripping supply. 2013 was certainly a good year for estate agencies: Seeff made R2.5 billion in sales between June and August 2013 and Remax did R1.5 billion in sales in November alone (representing its best month in the history of the South African arm of the company).

All indications are that similar sales figures will be seen again in 2014. But these big figures hide the fact that stocks are critically low and individual estate agents are frantically struggling to keep up with demand.

The continued high demand and high prices have also seen significant growth in the number of new developments under construction which means the building industry is also expected to see healthy growth in 2014.

Tip for investors: The property most in demand for purchase and for rental is and will continue to be located in security housing complexes, secure apartment buildings and security villages.

Tip for sellers: The lack of stock means that now is the best time to pressure agents to reduce their commission! Even knocking them down 1% can result in savings of thousands of Rand.

Tips for all purchasers: Competition is stiff! All prospective purchasers, particularly first time buyers, need to get their finances, documents and mind-set in order BEFORE starting to look for a property. If they haven’t they risk missing out on their dream home. In the current market houses can be snapped up in a matter of hours.

What does this mean for mortgages?

The prime lending rate (the rate at which the Reserve Bank lends to banks) is at a 65 year low of 5% and has been since 2012. Even with the expected increase to 5.5% in 2014 credit will remain cheap. And the current base home loan rate (the rate at which the banks lend to individuals) of 8.5% presents an unmissable opportunity: if you can qualify for a home loan and want to buy property, now is the time to apply.

In 2009 the banks lost their appetite for lending (due to the “Great Recession”) but in 2013 began to show signs that they’re getting hungry again: home loan application approval rates went from 29% in 2009/2013 to over 50% in 2013. We have heard, unofficially, from banking staff at two of the major banks that they have started 2014 aggressively seeking to expand their mortgage books. For clients they deem to be desirable this means lower rates and massive savings.

But it isn’t all good news for lenders and home loan applicants: cheap credit has seen an explosion in micro-lending, often unethically, which in turn has seen an explosion in the household debt of the average South African. Around 10 million people are struggling to meet their monthly repayments and over 1.5 million people have been black-listed and can no longer get access to credit.

In response the government is, despite numerous objections from financial institutions and experts, pushing through a Credit Amnesty which will see the adverse histories of all citizens (though not the actual debts) washed away. Banks will then be unable to accurately assess risk based on current methods and financial histories. The banks, and international firms, warn that this will force lenders to charge an increased premium for credit to mitigate the additional risk. Any increase to the cost of credit would make it inaccessible to more people which is, ironically, the exact opposite of what the government is trying to achieve.

Tip for the home loan applicant: Don’t wait too long to get your home loan if you qualify now. Our assessment is that in the best case scenario the National Credit Amnesty will see increases to the cost of your loan and the worst case would see a loan being completely unaffordable.

We live in interesting times

Despite the negativity surrounding the outcome of the next election and what a second term for President Zuma represents South Africa’s prospects over the medium and long term remain positive. And if you’re looking for a local, medium to long term investment property is the way to go.

Tip: Even in interesting times such as these property has, historically, been among the safest and most lucrative investments.

– Greg de Mink


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