Tainted credit records depress property market

Tainted credit records depress property market

Tainted credit records depress property market


More than 8.6 million credit-active consumers with damaged credit records were contributing to the poor performance of the residential property market this year, Jacques du Toit, the senior property analyst at Absa, said yesterday.

Largely because 46 percent of a total of 18.6 million credit-active consumers were in this predicament, in the first quarter, a recovery in house prices which started last year, when house prices rose 7 percent, is rapidly fading. This year prices are rising only about 1 percent year on year, according to Absa, based on mortgage loan applications approved by the bank. And in real terms - with inflation stripped out - prices are falling.

So far this year, prices of small houses had fallen 6.6 percent in real terms, medium-sized houses 3.6 percent and large houses 2.5 percent, Du Toit said.

A similar trend in residential property was noted by Standard Bank on Wednesday.

Research analyst Sibusiso Gumbi said median house prices rose 1.6 percent year on year last month, down from year-on-year growth of 2.4 percent in July. In real terms, prices "are in negative territory", Gumbi said.

Nominal house price growth reached a peak of 32.2 percent in 2004, according to Du Toit. Growth subsided to 4 percent in 2008, as the economy moved towards a recession. Prices fell 0.2 percent the following year.

The property market globally has been weak since the financial crisis of 2007/08 and the recession of 2008/09. Bloomberg reported yesterday that British house prices were 2.6 percent lower in the three months to August compared with a year earlier. UK house prices rose 147 percent, on average, between 2000 and the market's peak in October 2007.

"That was 11 times faster than consumer-price inflation of 13.2 percent. Values then slumped 21 percent through February 2009, though they've since increased 12 percent," Bloomberg said.

FNB home loans strategist John Loos said, in the US, the Case Shiller house price index revealed a year-on-year decline of 4.6 percent in June.

On the domestic front, Absa's house price index showed that, in the case of large houses, the market has taken a turn for the worse.

In nominal terms, the index for houses between 221m2 and 400m2, has fallen steadily each month from 407.6 points in March to 395.6 last month.

The indices for medium and small houses have moved up in the period. Medium-sized house are between 141m2 and 220m2, while small houses are between 80m2 and 140m2.

Du Toit said nominal house price growth would be "well within single digits for the full year, while in real terms prices are expected to decline in the face of rising consumer inflation". Inflation is expected to breach the ceiling of the Reserve Bank's 3 percent to 6 percent target range. Gumbi forecast nominal price growth in "low single digits".

Home loans up as banks relax lending rules

Home loans up as banks relax lending rules

Home loans up as banks relax lending rules


At the height of the property boom in 2006, South Africa's four major banks were approving an average of more than 30 000 new home loans every quarter.

During 2009 this number had dropped to well below 8 000 as banks tightened lending criteria considerably in response to the global financial crisis, as well as factors such as interest rate increases, high household debt ratios and the effect of the National Credit Act.

However, with sharp cuts in the repo rate over the past couple of years, the prime lending rate has dropped to below its 2006 level and, according to Lightstone property analysts, all indications are that banks have been slowly relaxing their lending criteria again. The result is that the number of new home loans approved is on an upward trend again, having increased by 10 percent since 2009.

Lightstone recently completed a study of the number of home loans approved per quarter and loan-tovalue ratios of the four major banks - Absa, Standard Bank, FNB and Nedbank - from 2006 to the first quarter of 2011, to assess whether the strict lending criteria applied over the past few years since the economic crisis have eased.

"There is a slow and cautious recovery and there has been a slight drop in the first quarter of 2011, with fears of a double dip recession being mooted. But an upward trend in new lending for the residential market indicates that banks are developing more of a desire for risk," says Lightstone property analyst Hayley Ivins.

"Boosting indications that lending criteria have relaxed is the fact the loan-to-value (LTV) ratios are on a similar upward trend. After dropping from an average for all banks and all market segments of almost 90 percent in 2006 to just 79 percent in 2009, they have climbed back up to an average of 82 percent since the first quarter of 2010."

She says there is a significant difference in LTVs, however, once these are assessed in terms of market segment. Poorer households are accessing home loans of over 90 percent LTV whereas the LTVs for the comfortably off and super-wealthy are around 80 percent and 75 percent respectively.

"A number of factors account for this trend. The first is affordability - it is often simply the case that comfortable and wealthier buyers have cash to put down deposits and have often sold previous homes at a profit, whereas those buying in poorer areas may not have savings or the profits from the sale of a home to invest.

"However, it should also be considered that much of the bad debt on the banks' books after the downturn in property values and rising interest rates caused many homeowners to default, came from the wealthier sector and higher-priced homes. Also, there has been pressure on the banks to contribute towards South Africa's low-cost housing backlog by making home loans more accessible to lower income earners.

"There has been comment from the property sector that the strict lending criteria are a major factor constraining house price growth, and that in light of low interest rates this approach may be too conservative - creating something of a buyer's market," says Ivins.

However, she says, there is clearly light at the end of the tunnel.

"Interest rates are low, home loan accounts are performing better and lending criteria should become more lenient, which should stimulate prices and demand as household debt comes under control and banks resolve the distressed property sales and properties in possession still on their books."

Plan for property taxes along corridors like Gautrain

Plan for property taxes along corridors like Gautrain : Property News from IOLProperty

Plan for property taxes along corridors like Gautrain


Owners of land along public infrastructure corridors like the Gautrain could be slapped with additional taxes as municipalities seek to augment thier revenues to close the widening gap between their expenditure needs and available funds.

Mayur Maganlal, the excecutive director for economic development and planning at the SA Local Government Association (Salga), said last week a possible source of additional revenue could be a tax on land along public infrastructure corridors like the Gautrain. Land values on these corridors typically arise as a result of the investment in infrastructure.

The Gautrain has also spurred a number of commercial and residential property developments around its station nodes. Areas around Gautrain stations, including Rosebank, Sandton, Hatfield, Marlboro and Rhodesfield, have commercial and residential property developments under way or being planned.

Gover nments around the world have been using various mechanisms for capturing a share of the rise in land values as a result of the public infrastructure investments.

"Many planners and economists, including Nobel laureate William Vickrey, suggest that cities could benefit by funding transit system development costs and a major portion of operating costs from land value capture, that is, by taxing a portion of the additional value of adjacent properties that result from transit accessibility," says a study by the Victoria Transport Policy Institute, a Canadian transport research outfit.

Vickrey was a Canadian economist who was the joint winner of the Nobel prize for economics in 1996.

Property economist Francois Viruly said some cities had played the property market very well by taking advantage of increases in the price of properties in and around mass transit transport systems and using the proceeds to pay for the cost of building those systems. The big debate locally was whether municipalities had developed masterplans for the Gautrain stations, he said.

It emerged during the Salga conference that municipalities were working on a tax on businesses that could raise as much as R19 billion annually.

Development charges, another source of additional revenues, are levies that are imposed on developers of new or existing properties.

"Municipalities currently significantly under-recover revenues from development charges," says Salga.

"This is increasingly problematic as the revenue foregone limits the ability of municipalities to invest in the expansion of infrastructure that supports economic growth and poverty reduction," says Salga.