Despite the recent cutback in consumer incomes, a slight swing to residential investment is now becoming evident

There is evidence that the potential South African home buying public are slowly – and almost reluctantly – reprioritizing their spending habits and are showing a slightly greater determination to acquire residential property in the traditional South African fashion.

This was said recently by Mike van Alphen, National Manager of the Rawson Property Group’s bond origination division, Rawson Finance.
Van Alphen, who has recently been in meetings with FNB executives, said that the figures compiled by FNB’s respected research team (headed up by the economist John Loos) indicate that the established and new households, particularly those in the first time home buying bracket, have been shown by their latest estate agency survey to have improved significantly.

This improvement, said van Alphen, has to be seen against a backdrop in which annual increases in real disposable income grew from a very low base in 2008/2009 to a point where they were well ahead of the economic growth rate in 2010 to 2012. This growth began to slow again from early 2012 onwards and by the fourth quarter of that year was down to 3,5%.

The reasons for this slow down, said van Alphen, have generally been recognised as rapidly increasing inflation, a tighter tax network and low returns on fixed investments, particularly those which are money related.

Nevertheless, there are indications, he said, that a revival in home buying is taking place and undoubtedly a primary cause of this has been the understanding that housing stock for sale is now reducing and, more pertinently, that renting is no longer that much less expensive than regular bond payments. The latest FNB/TPN graph indicates that returns on residential property rose from around 6,5% in 2007 to 8,6% in early 2013. This, said van Alphen, can only have been caused by rising rentals, a factor of which buy-to-let investors are increasingly aware.

Quoting from the FNB survey, van Alphen said that an increase in home investment is still feasible, provided that South African households continue to focus more on saving and less on spending and/or banks commit themselves to increased mortgage lending, which, in theory, is their policy.

“Lending on the traditional household ‘luxuries’ such as motor cars, white goods and electronic equipment has to be reduced in favour of mortgages, even if the interest rates on the latter are not as good as on the former. This, of course, calls for commitment by consumers to reprioritize their spending patterns in favour of property, but FNB have indicated that there are signs that this is taking place. It will indeed be a very welcome change if South Africans now regain a healthy balance between residential fixed investment and consumer spending, which at one stage was very definitely excessive. To quote the FNB survey, we seem to be in for a period of tight finances made possible by ‘trade-offs’.”

Article: www.rawsonfinance.co.za

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