Prospective property owners hit by rising prices and tariffs

06 July 2018

Factors such as the weaker rand, rocketing fuel prices and the steep electricity and municipal tariff increases could delay many families' hopes of becoming homeowners, especially if they start borrowing more to make ends meet.

This is according to Rudi Botha, chief executive of bond originator BetterBond.

Botha said South African households had come under increasing pressure this year, especially since the VAT increase in April, and it seemed that many consumers were now taking on more debt.

"We are concerned that this could easily reverse the gains made over the past 10 years as South Africans worked really hard to pay off their debts, and steadily reduced the household debt-to-income ratio from 86.5 percent in 2008 to the current 72 percent. Particularly worrying is the rise in the rate of unsecured borrowing, which includes personal and micro loans, credit card balances and overdrafts," said Botha.

He added that secured credit extension, which includes home loans, leases and vehicle instalment sales, showed annual growth of 3.9 percent at the end of May, with household mortgage balances recording year-on-year growth of 3.3 percent.

Botha said this meant a bigger percentage of the average consumers' monthly takehome pay was being used to repay "bad debt" rather than "good debt" such as a home loan.

"What is more, this could get worse due to further fuel price hikes and this year's round of municipal tariff increases, while the stagnant economy is making it difficult for employers to offer wage increases that would improve the situation. And prospective buyers whose disposable incomes were diminished by additional debt will find it more difficult over the coming months to qualify for home loans, even though the banks are currently eager to lend to them," said Botha.

Amanda Cuba, a director and chief operating officer of RE/ MAX of Southern Africa, said growth in the property market had seen a slight slowdown this year.

"According to Standard Bank's HPI, the national median property price dropped slightly from R953 300 in May to R953 100 in June, which shows that properties are starting to become more affordable to adjust to our current economic climate. Banks are also becoming more lenient with their lending requirements, with more 100 percent home loans being granted now than ever before," said Cuba.

She said although purse strings were tight for most consumers currently, most economists predict a turnaround within the next year or so, and the property firm shared the same sentiments.

"First-time buyers might be able to purchase property now at much lower prices than if they were to purchase when the market eventually takes an upward curve again. However, as inflationary pressure is being felt, consumers are likely to want or need to borrow to survive.

"For those first-time home buyers who intend entering the market, it is imperative to watch their credit rating, even though prices are adjusting downwards, and not adversely affect it by obtaining shortterm loans that may count against them when they are ready to fulfil their longawaited dream of owning a home," said Cuba.

The South African Federation of Trade Unions (Saftu) said in a statement that the union was deeply concerned at the effect the latest increase in the price of petrol and paraffin would have on the living standards of workers.

"The lower earners will be hardest hit, as they spend a larger average portion of their income on transport and food. Both will become more expensive as bus and taxi operators raise their fares and retailers increase prices," said the trade union.

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